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By Bassem Hamdy
September 12, 2016
Yesterday, our nation observed the 15th anniversary since September 11, 2001. The tragedy of that day is still an undeniable turning point in recent U.S. and world history. Factoring in the loss of life, infrastructure, utilities, and cleanup, the toll of those attacks amounts to almost $59 billion dollars when adjusted for inflation. Since then, our nation has undergone wars, collapse of the housing market, and natural disasters. Although the scars of that day remain on our national psyche, we have rebuilt. Today, I can proudly say that our economy continues to slowly grow and our industry remains solid with a national Construction Health Indicator (CHI) score of 86.
As we continue to rebuild, investments (93) remain the pride and joy of our nation’s health score. The change in housing completions from last month's reading increased 12.3%. Since July, U.S. construction spending was unchanged as weakness in spending on government projects offset gains in home building and the strongest month for non-residential construction on record. However, Procore’s chief economist, Anirban Basu, portends that these numbers are also “consistent with the notion that the pace of expansion in nonresidential construction activity has slowed.”
As our indicator suggests, nonresidential construction spending has expanded by less than 2 percent over the past year. The biggest culprit continues to be a lack of public sector spending on infrastructure, whether in the form of roads or water systems. Meanwhile, spending in office, lodging, and commercial categories has expanded. However, the pace of growth is beginning to be constrained by a combination of regulatory pressures and growing concerns regarding overbuilding in certain key communities and product segments.
There have been no changes to commodities (72) in the past three weeks. As the producer price index (PPI) of sand, gravel, and stone continue to rise we will witness the highest ever value of concrete ingredients weighing on our commodities score. In an opposing trend, rebar futures had the most notable recent losses, as well as falling 4.1% in the past year. That may be about to change since the cost of iron and steel scrap has moved up by more than 38% in the last half-year. Just the same, that still leaves iron and steel scrap prices 32% below where they were three years ago.
During last week’s G20 conference, statements by political leaders indirectly (although very obviously) looked to China in regards to their excess steel capacity as a global issue. Recently, Washington hiked import duties by up to 500% on Chinese steel to offset what it says are improper subsidies. As a result of the G20 conference, steelmaking economies have resolved to call on the Organization for Economic Co-operation and Development (OECD) to form a steel forum to study production overcapacity. All in all, the outcome of these passive actions and the fate of steel’s PPI and rebar futures remains to be seen and we will continue to inform you of any impending trends.
Labor (93) figures for construction unemployment are at the lowest levels observed in the past year. The most recent observation is 4.3% higher than the all-time low value. Despite encouraging unemployment numbers, the construction industry lost 6,000 net jobs in August according to the U.S. Bureau of Labor Statistics (BLS). Additionally, employment in the heavy and civil engineering sector fell for the fourth time in five months, declining by 6,500 jobs on net, an indication of still weak infrastructure investment. The construction industry’s unemployment rate rose to 5.1 percent in August, but is still 3.4 percentage points lower than it was at the beginning of 2016.
Although the labor score is currently favorable, a better measure of future indicators can be found in the ratio of construction job openings to actual filled positions. Eight years after the housing market crashed and drove an estimated 30% of construction workers into new fields, contractors across the country are struggling to find workers at all levels of experience. There are approximately 200,000 unfilled construction jobs in the U.S.––a jump of 81% in the last two years. The ratio of construction job openings to hiring, as measured by the Department of Labor, is at its highest level since 2007. As a result, we will continue to see that the labor shortage is raising builders' costs, workers' wages, and slowing down construction.
Regionally, the west continues to show a dominate construction health climate with a score of 88 shared between the Southwest (89), California (87), and the Pacific Northwest (87). California added the most construction jobs (29,100 jobs, 4.0%) between July 2015 and July 2016. New industries, such as e-commerce, also drove construction work, including two Amazon fulfillment centers in California that will be 1 million square feet each. Meanwhile, Arizona and Oregon saw a decrease in constructions percentage of GDP from 2014.
The most severe worker shortages are currently being felt in the Midwest. Kansas lost the highest number of construction jobs with a loss of 4,400 jobs for the year. As reconstruction begins in the recovery from heavy flooding in areas such as Texas and Louisiana, the labor shortage is especially noticeable. The states with the lowest share of construction in their GDP were New York and Connecticut at 3.1% for the third year in a row.
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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