Home News Community
Build your career with Jobsite’s new tools.
Join the new community to share best practices, ask questions, and network with construction professionals like you.

Construction Health Update: Solid at 82; future projections look murky


Share:


As of Monday, October 31 our national Construction Health Indicator score is solid at 81.9. 

Last week, the U.S. Commerce Department reported that our economy grew at an annualized rate of 2.9% in the third quarter – the strongest pace in the past two years. Meanwhile, growth in overall GDP has remained below 2.7 percent for the previous seven quarters. 

So, how is this affecting construction?

Although the current state of our economy looks rosie, Procore’s Chief Economist Anirban Basu warns that this performance may not be sustained. Two sources of weakness continue to impact our industry: labor shortage and materials prices.

Labor

According to a report from the Associated General Contractors of America, construction job openings are at their highest level in a decade. However, labor shortages continue to drive construction backlog for large contractors to a new peak of 14 months last quarter according to the Associated Builders and Contractors (ABC) Construction Backlog Indicator (CBI). 

For the foreseeable future we will continue to see an increase in labor costs, both in needing to pay higher rates for subcontractors and paying their own workers more in order to complete projects on schedule. 

Regionally, backlog in the South has never been higher than it has been over the past year, with significant activity reported in several South Carolina, Georgia and Florida markets. This is despite a 0.6% increase of employment in the Southeast region during the month of September.

Investments

The big news in investments last week was the strength in the market for homes sales – advancing 3.1% last month.  These gains were concentrated in the Northeast, Midwest and South, as sales tumbled in the West for the first time this year.

The improvement largely reflects recent hiring gains and wages coupled with low interest and mortgage rates. But, builders continue to struggle keeping pace with new construction, creating a shortage of listings for would-be buyers and boosting prices 2.7%.

In the private sector, federal government spending expanded 2.5 percent in the year’s third quarter after contracting during each of the prior two quarters. U.S. infrastructure funds hold stocks with over $2 trillion in market capitalization. About 35% is in domestic utilities, 40% in public transportation infrastructure and the lion’s share in non-U.S. projects.

Commodities & Materials

Volatility in commodity markets continue although the U.S. energy sector shows signs of growth after struggling for many quarters. A recent uptick in oil prices continue to boost the producer price index (PPI) of building materials with no signs of decreasing. This is most notably reflected in figures for the PPI of concrete (1.9% increase) and other sand, gravel and stone products – increasing a total of 4.4% since November 2015.

Conflicts with the Chinese government regarding overproduction and unfair dumping have caused steel rebar futures to rise 11.6% higher than the average over the past 12 months. Meanwhile, amidst U.S. consideration to decrease Canadian lumber imports, the price of framing lumber is up by 20% from one year ago and CME framing futures are up by about 40% year over year. 

Moving Forward

Though our third quarter GDP figure is solid, this may not be a sign of persistent strength. The Fed is likely to raise interest rates before 2017, which will likely put upward pressure on an already-strong dollar. As a result, Basu expects economic growth to once again sink in the fourth quarter, falling to 1.6 percent. 

He says, “the economy will have to deal with a number of headwinds going forward, including a stronger dollar, building inflationary pressures and higher interest rates. Consumer spending growth will continue to lead the recovery. While this will help support construction spending in some areas like housing starts, public and nonresidential investments are likely to expand at a slower pace in early 2017.”

There should be no shortage of infrastructure investment opportunities for the foreseeable future: global infrastructure assets are estimated to be valued at $50 trillion, which is projected to rise to over $110 trillion by 2030. With the current highly publicized bipartisan political elections, the future outlooks seems poised for growth in income and diversification.

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.

Want these weekly updates emailed to you right when they’re published? Hit the orange  SUBSCRIBE button at the top right corner of the page!

Comments

Add New Comment