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By Bassem Hamdy
October 3, 2016
Our national Construction Health Indicator Score (CHI) has remained solid at a score of 86. The most influential factors affecting this score are: a labor climate(93) that reflects low construction unemployment and robust job gains, investments (93) in nonresidential construction, and a dip in rebar futures. Meanwhile, the highest ever value of the producer price index of concrete ingredients is dampening our commodities score (72). Let’s take a look at a current bright spot in our national CHI – investments.
Overall construction spending totaled $1.14 trillion in August––a drop of 0.7 percent. Residential construction decreased 0.3 percent, while non-residential activity was down 0.4 percent, and government projects fell two percent. With low interest rates and a growing economy prompting the current construction boom, this trend should reverse in the near future.
According to the Commerce Department, our nation’s gross domestic product (GDP) expanded at an annual pace of 1.4% between April and June. This is an increase from the 1.1% growth that was previously estimated and reflects a shift in our nation’s investments in nonresidential construction.
Spending on these nonresidential buildings in the private sector will continue to grow into the next year with an estimated 3-4 percent increase. According to the Bureau of Labor Statistics Producer Price Index, as energy prices are lowering, nonresidential construction input prices are down 0.2 percent on a month-over-month basis.
These falling input prices are helping to moderate growth in total construction costs, allowing the national average construction backlog to fall 8.5 months during the second quarter. However, tightening credit conditions in the commercial real estate market will likely underscore economists’ optimism in future private nonresidential construction activity.
In addition, we are experiencing lower than average spending in government subsidized construction––with a value that is only 0.8% higher than the lowest value in the past year. It will be interesting to see how the current presidential election will affect investments in infrastructure in the near future.
Figures for housing completions are currently at the highest levels observed in the past year. As historically low mortgage and interest rates continue to keep the housing market moving forward, residential construction growth will be limited by the labor shortage and rising regulatory costs. After seeing a reported median household income increase of 5.2% from last year, the Federal Reserve is expected to increase interest rates in December.
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.
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