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Construction Health Update: Investments Score Rises to an Annual High of 97


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As of Monday, November 28 our national Construction Health Indicator score is 83.2 – a two point drop from last week. 

It’s no secret that our nation’s infrastructure is crumbling—literally, in some cases. The American Society of Civil Engineers gives US infrastructure a D+, and estimates the country would have to invest $3.6 trillion to patch it all by 2020. With grand scale infrastructure plans on the horizon, our industry will continue to move towards a perfect investments score. However, in the near term the most pressing economic challenge for construction remains the depressed labor market.

Investments

Our investments score continues to lead the charge in a strong overall Health Indicator score – increasing by one point to 97 this week. This is mostly led by the much needed increase of housing starts and confidence in future infrastructure.

Currently, we are experiencing the lowest value of total public construction spending in the past year. Most recently, publicly funded construction dropped 0.9 percent to an annual rate of $270.3 billion. Over the past 12 months, government construction has slumped 7.8 percent - a decline equal to nearly $23 billion.

However, since the election stock prices have soared, reflecting confidence in future government backed infrastructure. It is estimated that putting just $18 billion a year into roads, bridges, and waterways could create a $29 billion jump in GPD and more than 200,000 jobs, according to the Economic Policy Institute. Non-government players may well move faster and more efficiently than government agencies, and thus it is possible that private investments could grow in 2017. Considering current low interest rates, this could be a good investment for the private sector. However, a concrete plan for incentives to invest in such projects remains to be seen.  

Meanwhile, amid high demand for single family homes, figures for housing starts are at the highest levels observed in the past year – 88.5% lower than the all-time high value.

Labor

Although the national labor score remains solid at 88, the labor shortage remains a problem across the country. According to the Associated General Contractors, 69% of construction firms are struggling to fill hourly craft positions. This comes at a time when the future administration has promised to put people to work with a $1 trillion infrastructure stimulus. 

As of October 2016, the national unemployment rate was a mere 5.7% with 6.68 million people employed in construction – the largest monthly total recorded in the past year. However, as we continue to move towards full employment these workforce shortages are not going to go away in the near future. 

Meaning, the potential to undermine broader economic growth by forcing contractors to slow scheduled work or choose not to bid on projects could inflate the future cost of construction. We are already seeing this reflected in recent wage increases needed to recruit and keep construction workers. The average hourly wage increased 0.3% during October 2016. It has risen over each of the past 10 months and grown a total of 2.9% since December 2015.

Meanwhile, construction backlog for large contractors remains at a peak of 14.06 months, according to the Associated Builders and Contractors Construction Backlog Indicator. Nationally, the average backlog fell to 8.5 months, down 1.6 percent from the last year. Overall, the Construction Backlog Indicator remained virtually unchanged on a year-over-year basis, signaling that growth in the nation’s non-residential market is slowing.

Commodities & Materials

This week commodities experienced the largest dip since last week – seven points – which is mainly due to the high producer price index of concrete, and growth in lumber futures. According to the U.S. Bureau of Labor Statistics, after rising 0.3% in September, the economy-wide PPI was unchanged last month. Meanwhile, input prices are just 0.5% higher than this time last year. The rise in prices for goods can mainly be attributed to a 2.5% increase in energy prices.

Prices received for ready-mix concrete declined by 0.1%, but is still valued at 254.6 – the highest value on record. This number is 1.4% higher than the average value observed in the past year. 

The producer Price index for softwood lumber declined 1.2% this month, while the Chicago Mercantile Exchange lumber futures grew 20.1% in the past year. Amid uncertainties in our nation’s future international trade agreements, a strengthening U.S. dollar makes Canadian softwood lumber cheaper to import, which may prove increasingly important as softwood lumber litigation picks up in the coming months.

Further currency appreciation appears on the horizon as Federal Reserve officials signal that they will raise the U.S. benchmark interest rate in December. As a result, the price of certain inputs—such as iron, steel, copper, plumbing fixtures, and nonferrous wire and cable—will begin to rise more rapidly during the coming months while fuel price increases remain stable.  However, Procore’s Chief Economist Anirban Basu suggests that “a still sputtering global economy will help put a lid on construction input price inflation, suggesting that contractors should not be deeply concerned by prospects for rapid input price increases, at least not yet.”

That’s all we have for now. Keep building and we’ll keep crunching the numbers. Check back here daily as numbers refresh and we’ll continue to translate this into meaningful digests that will help you make informed decisions all week long.

Click here for recaps from Construction Health Updates from past weeks.

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