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By Bassem Hamdy
September 26, 2016
The National Health Indicator currently stands at 86. Labor (93) and investments (93) continue to carry the weight of our health score as high employment rates, gains in housing completions, and a dip in rebar futures continue to benefit the growth of our industry. Meanwhile, according to the Bureau of Labor Statistics, the PPI of concrete remains at an all time high caused by an increase in the cost of sand, gravel, and stone. This is weighing heavily on our commodities (72) score.
Despite our country’s overall slow economic growth rate of 1.1%, Procore’s Chief Economist Anirban Basu predicts continued growth for the construction industry in 2017. “Nonresidential construction spending growth will continue into the next year with an estimated 3-4 percent increase,” said Basu. “Growth will continue to be led by privately financed projects, with commercial construction continuing to lead the way. Energy-related construction will become less of a drag in 2017, while public spending will continue to be lackluster.”
Meanwhile, the national average construction backlog fell to 8.5 months during the second quarter, down 1.6% according to the Associated Builders and Contractors (ABC). Commercial construction continues to see an increase in projects, but the average contractor is no longer getting busier. Stimulus-related spending is favoring large contractors for infrastructure projects. Because of this, large companies are disproportionately gathering market share of these backlog numbers. This also suggests that growth in nonresidential construction spending appears to be ending.
Last week, we reported that median household income increased 5.2% from last year, marking the first increase in median income since 2007. As the Federal Reserve prepares for talks to increase interest rates in the near future, Basu predicts that this hike in interest rates could cause the U.S. dollar to strengthen, helping to suppress future materials price increases.
Financial regulators have also begun to express concern that possible bubbles may be forming in certain real estate segments in certain cities. Paired with a slowdown in business investment, this will make developer financing more difficult to justify.
The Southwest, California, and the Pacific Northwest continue to be the most successful regions in our industry. In this region, we are seeing relatively high figures for all-property housing permits along with contractors in Seattle, Portland, Boise, and in a number of California markets reporting still expanding backlog. Both private and public contracting are contributing factors as local governments scramble to accommodate rapidly expanding populations.
In the rest of the country, according to the U.S. Commerce department, housing starts have reduced to 5.8% in August. 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.
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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Procore Construction Health Indicator
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