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Construction Health Update: Moving Into the New Year at 84


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As of Monday, December 26 our national Construction Health Indicator score is 83.8.

As we review 2016, there is cause for celebration. Our industry’s employment reached an eight year high of 7,704,000 workers and private investments encouraged a 4.2 percent contribution to U.S. total gross domestic product. 

Meanwhile, national growth for the entire year is likely to be around 1.5 percent. That is down from 2.6 percent in 2015, and is the weakest performance since the economy shrank 2.8 percent in 2009.

So how how did the construction industry fare in this economic climate?

Investments

This year the amount spent on construction put in place during the first 10 months of this year was $1.172 trillion. That is a 4.5 percent increase from the same period in 2015, and has helped our industry contribute 4.2 percent to the U.S. GDP.  

Unfortunately, housing starts fell 18.7 percent, building permits fell 4.7 percent, and in the public sector American spending on infrastructure is in decline

Despite these numbers the Associated Builders and Contractors’ (ABC) Construction Confidence Index (CCI) score is 63. This indicates that the average construction leader is expecting growth in sales, margins, and staffing levels come 2017, and there is much to justify this reasoning.

First, many in the industry are eager to see the effect that a proposed $1 trillion infrastructure investment plan will have on construction. According to the Bureau of Economic Analysis the average age of U.S. structures is 23 years old. Meaning, mass transit roads, bridges, factories, hospitals, government buildings, and education facilities will need to be replaced or renovated in the coming years. Lastly, almost 75 percent of spending was attributed to the private sector. This is thanks to consumer-driven segments like e-commerce. The construction of commercial warehouses helped produce a 6.4 percent increase in construction between August 2015 and August 2016. 

Labor

As of mid-November, the national unemployment rate stood at 5 percent. That’s a far cry from the 13.3 percent unemployment rate that prevailed five years ago as a result of the Great Recession. However, during this 2007-2008 period – which caused an estimated 25 percent of construction workers to vanish – skilled labor pools have thinned. With backlog at 8.7 months and a potential $1 trillion infrastructure plan on the horizon, 2017’s most significant challenge will be finding skilled workers to fill demand.

Data from the Bureau of Labor Statistics’ (BLS) Job Openings and Labor Turnover Survey indicate that construction job openings stand at a 10-year high. Currently, there are still around 200,000 unfilled construction jobs in the United States. 

Without appropriately trained labor, construction costs have risen. Most notably the average hourly wage – $28.28 per hour – has increased an astonishing 11.6 percent.

Additionally, productivity of the average American worker has decreased 0.5% percent. Amid this news, economists like the Federal Reserve Chair, Janet Yellen, are proposing that businesses need to start focusing more on raising the efficiency of their existing workforce rather than struggling to hire more workers to meet demand.

Commodities & Materials

Earlier in 2016, oil was trading below $30 per barrel. Now, with OPEC’s decision to limit oil production natural gas recently bounced back to $50 per barrel. This is noteworthy for several reasons: it increases the cost of transporting commodities, and inflates the cost of energy used to refine construction materials.

This could translate into further stagnation in construction spending volumes and decreased bottom lines. These conditions will be particularly volatile if interest rates begin to rise in earnest in 2017, encouraging a growing number of proposed projects to become impracticable.

Moving Forward

After a well deserved Holiday break it will be time to roll up our sleeves once again. This is because 2016 has left us much to anticipate and overcome in the next 12 months. Here are some predictions that Procore’s Chief Economist, Anirban Basu has made for 2017:

  • Associated Builders and Contractors (ABC) forecasts a slowdown of growth in the U.S. commercial and industrial construction industries.

  • The consumer-led recovery should still lead to modest growth in construction spending.

  • Nonresidential spending should expand 3.5% in 2017.

  • Increases in interest rates will negatively impact stocks, bonds, commercial real estate and apartment buildings.

  • Increases in commodity prices will translate into further stagnation in construction spending volumes. 

  • The demand for construction workers will increase already significant wage pressures.

  • Rising energy prices could produce more investment and rising earnings.

Anirban Basu’s full 2017 Economic Outlook is available in the December issue of ABC’s Construction Executive magazine. 

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