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Construction Health Update: Moving Towards the New Year with a Solid Score of 87


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As of Monday, December 12 our national Construction Health Indicator score is 87 – a one point increase from last week. 

  • The strongest contributor is Investments remaining solid at 100.

  • The national Labor score is solid at 91. 

  • The National Commodities & Materials Indicator is up two points from last week, at 69.9.

The national construction investments score remains at a perfect 100 this week. Meanwhile, economists begin to push productivity statistics as a solution to the labor shortage versus unemployment statistics.

Investments

Following two months of decline, the overall construction industry spending increased in October. The jump to a seasonally adjusted annual rate of $1.172 trillion, is 0.5% up from the revised rate of $1.166 trillion in September. 

After contracting in recent years, public construction spending accounted for most of this increase—gaining 2.8 percent compared to September. Spending on office construction was down in October (2 percent) but up a sizable 28.4 percent compared with October 2015. 

Likewise, spending on hospitality projects edged down 2.1 percent for the month, but was up 28.4 percent for the year. Other growth sectors included industrial (up 6.1 percent for the year) and healthcare (up 2.2 percent for the year), but spending on manufacturing projects contracted 8.6 percent since last year. The manufacturing sector has been hit by the strength of the dollar and other trends.

Total residential construction spending also increased 1.8% month-over-month to $472.9 billion, marking a 4.6% increase year-over-year. 

Spending on private residential construction rose to $466.2 billion in October, 1.6% up from the upward-revised rate in September. This trend is up, but remains well below the pre-crisis peak of $678.0 billion reached in February 2006.

In the residential sector, housing starts in October soared 25% in September. This is the highest rate since 2007 according to, the U.S. Census Bureau.

The Federal Reserve’s flow of funds report total outstanding mortgage debt grew by 1.9% in the third quarter of 2016. This reflects the highest jump in outstanding housing debt since the third quarter of 2008.

Sales of newly constructed homes jumped 17.8% year-over-year, and data from the National Association of Realtors shows that existing home sales rose nearly 6% in October over 2015 to reach a new cyclical peak. This news comes on the dovetails of the housing shortage for new buyers.

Overall, low unemployment rates, accelerating wage growth, and low-but-increasing mortgage debt levels suggest the public in 2017 is primed to buy houses.

Labor

The U.S. construction industry added 19,000 net new jobs in November and has now added jobs for three consecutive months, according to the Associated Builders and Contractors (ABC).

Industry employment is up by 2.4 percent. This is considerably faster than the overall economy’s 1.6 percent job growth rate.

The skilled labor shortage appears to be impacting nonresidential activity more than residential. The nonresidential sector added 1,100 net new jobs in November, while the residential sector added 19,600 positions. Heavy and civil engineering lost 2,100 jobs for the month.

Amid this skilled labor shortage, 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 just hiring more workers to meet demand.

According to the labor department, overall American productivity increased in the third quarter at a 3.1 percent rate. The revised estimates for productivity and output followed the government's revisions to the gross domestic product, the economy's total output of goods and services, last week. The revision boosted GDP growth in the third quarter to 3.2 percent, up from an initial estimate of 2.9 percent.

Commodities & Materials

In the past week we have witnessed an uncharacteristic decline in lumber futures - 15.9% in the past year. This is before the the U.S. lumber industry announced a proposal to impose trade tariffs on Canada over alleged timber subsidies.

The move to establish duties on Canadian wood products comes a little more than a year following the expiration of the 2006 Softwood Lumber Agreement between our two countries, which for nine years had established a lumber-products pricing system that ended decades of trade disputes between the neighboring countries. 

The U.S. National Association of Home Builders predicts increased lumber prices along with higher interest rates, making new houses less affordable for average consumers. This could hamper the U.S. housing recovery, which has been slowly improving since the 2008 financial crisis.

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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