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Construction Spending, Labor & Materials Outlook

Construction Spending, Labor & Materials Outlook. January 2, 2014 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org. Construction spending (seasonally adjusted annual rate—SAAR). Total construction, Jan. 2006-Nov. 2013 ( billion $, SAAR). Nov . 2013 total: $ 934 bil .

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Construction Spending, Labor & Materials Outlook

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  1. Construction Spending, Labor & Materials Outlook January 2, 2014 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

  2. Construction spending (seasonally adjusted annual rate—SAAR) Total construction, Jan. 2006-Nov. 2013 (billion $, SAAR) Nov. 2013 total: $934 bil. Public: $275 Private Nonresidential: $314 Private Residential: $346 12-month % change, Jan. 2006-Nov. 2013 Private Residential: 17% Total: 6% Private Nonresidential: 1% Public: 0% Source: Census Bureau construction spending reports

  3. Construction is growing, but unevenly 3 trends helping many sectors and regions: • ‘Shale gale’ • Panama Canal expansion • Residential revival 3 trends holding down construction growth: • Government spends less on schools, infrastructure • Consumers switch from stores to online buying • Employers shrink office space per employee Source: Author

  4. One (or many) bright spot(s): the shale ‘gale’ Bakken Marcellus Niobrara Haynesville Permian Eagle Ford • Source: U.S. Energy Information Administration

  5. Shale’s direct and indirect impacts on construction • Onsite: Each well requires access road, site prep, pad, storage pond, support structures, pipes • Nearby: Products, water require trucking, rail, pipeline, processing • Local spending by drilling firms, workers, royalty holders • Upstream: orders for fracking sand, rigs, compressors, pumps, pipe, tanks, trucks, railcars, processing facilities • Downstream: Petrochemical, power, steel plants; LNG export terminals, fueling stations; LNG-powered vehicles • Losers: coal; maybe wind, solar, nuclear & suppliers Source: Author

  6. U.S. ports affected by Panama Canal expansion Seattle & Tacoma Columbia River at Mouth, OR & WA NY-NJ Baltimore Oakland Norfolk Los Angeles/ Long Beach San Diego Charleston Savannah Jacksonville Mobile New Orleans Houston Miami • Source: U.S. Army Corps of Engineers

  7. Panama Canal expansion’s impacts on construction • Ports: investing in dredging, piers, cranes, land access • Nearby: Storage, warehouse, trucking, rail facilities • Bridge, tunnel, highway improvements • Inland: possible changes in distribution, manufacturing Source: Author

  8. Private residential spending is still rising—for now Private residential spending, Jan. 2011-November 2013 (billion $, SAAR) Multi-family Single family Improvements 12-month % change, Jan. 2011-November 2013 Multi-family: 36% Single family: 18% Total: 17% Improvements: 10% Source: Census Bureau construction spending reports

  9. Housing outlook • SF: rising for now but tight credit, fear of lock-in, demographic shifts may limit increases • MF: Upturn should last into late 2014, perhaps 2015 • Vacancy rates near multi-year lows in most cities • Preference for urban living, add to demand • Condos have been slower to revive than rentals • Government-subsidized market likely to worsen • Improvements: should benefit from rising SF sales Source: Author

  10. Nonres segments, 2013 & 2014 forecast (billion $, SAAR) • Source: Census Bureau construction spending report; Author’sforecast

  11. Construction spending: industrial, heavy (billion $, SAAR) Power (84% private) Manufacturing (99% private) Public Private Private Latest 12-mo. change: 14% Latest 12-mo. change: -21% (private -24%; public -2%) Private transportation facilities Public transportation facilities Latest 12-mo. change: 5% Latest 12-mo. change: 18% Source: Census Bureau construction spending reports

  12. Construction spending: institutional (private + state/local) Total private education State & local higher education Latest 12-mo. change: 3% Latest 12-mo. change: 7% Hospitals (79% private) State & local preK-12 education State/local Private Latest 12-mo. change: -1% Latest 12-mo. change: -3% (private 0%; state/local -13%) Source: Census Bureau construction spending reports

  13. Construction spending: public works (billion $, SAAR) Highways (99.9% public) Sewage/waste (99% public) Public Public Latest 12-mo. change: 4% Latest 12-mo. change: -6% Amusement & recreation (57% public) Water supply (95% public) Public Public Private Latest 12-mo. change: 2% Latest 12-mo. change: 6% (private 12%; public 1%) Source: Census Bureau construction spending reports

  14. Construction spending: developer-financed (billion $, SAAR) Retail (private) Office (80% private) Public Private Latest 12-mo. change: 6% (private 11%; public -13%) Latest 12-mo. change: 24% Warehouse (private) Lodging (private) Latest 12-mo. change: 33% Latest 12-mo. change: 26% Source: Census Bureau construction spending reports

  15. State construction employment change (U.S.: 3.1%) 11/12 to 11/13: 39 states up, 10+ DC down, 1unchanged Over -10% -5.1% to -10% -0.1% to -5% 0% 0.1% to 5% 5.1% to 10% Over 10% -0.1% 4% -4% 6% NH7% 4% 8% 8% 2% 4% 3% VT 4% 2% 5% 5% -0.2% 5% 1% MA5% 4% 2% -3% 3% -3% 7% 5% 10% -0.5% CT11% RI3% 1% -1% 5% -1% DE-3% NJ3% 2% -1% 1% 2% 6% 6% 9% -3% 17% MD 4% DC-4% 4% Shading based on unrounded numbers 7% 3% HI4% • Source: BLS state and regional employment report

  16. Construction employment, Nov. ’13 vs. peak • US: construction -24% (-1.9 million) below Apr. ‘06 peak • States: LA & ND at new peak in 2013, 44 states > 10% below • Metros: only 25 of 339 at new Oct. peak, not seas. adjusted Peak in 2013 Within 10% of peak F >10% below peak • Source: Author, from BLS national and state & area employment data (www.bls.gov/ces. www.bls.gov/sae)

  17. Construction spending, labor & prices, 1/11-11/13 Spending +23% but jobs only +8%. How do they do it? • Contractors charging slightly more: PPI +9% (industrial buildings) • More hours per worker: aggregate hours +12% (+4% per employee) • Implication: further spending growth will trigger bigger pickup in hiring—but will workers be available? 23% total 9% price change 14% real • Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

  18. Construction vs. overall (un)employment, 11/10-11/13 • Construction unemployment fell sharply in past 3 years • But industry employment has risen modestly • Thus, workers are leaving for other sectors, school, retiring Unemployment rates(Not seasonally adjusted, Nov. 2010-Nov. 2013) Change in unemployment & employment (Not seasonally adjusted, Nov. 2010-Nov. 2013) • Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

  19. Hardest positions to fill(% of respondents that are having trouble filling) Percentage of firms having a hard time filling key professional & craft worker positions Some craft 74% Some prof. 53% all prof. & craft 21% Some prof. & craft 24% prof. only 7% no trouble 11% craft only 28% not hiring 8% • Source: AGC Worker Shortage Survey, Aug. 2013

  20. Material & labor costs vs. office bid prices since 12/10 PPI for materials 11/12-11/13: 1.1% PPI for offices 11/12-11/13: 2.7% ECI 9/12-9/13: 2.1% • Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI)

  21. Producer price indexes for key inputs, 1/11-11/13 (Jan. 2011=100) Steel mill products Copper & brass mill shapes Latest 1-mo. change: -1.1%, 12-mo.: -6% Latest 1-mo. change: 0.8%, 12-mo.: -1% Gypsum products Lumber & plywood Latest 1-mo. change: 1.4%, 12-mo.: 13% Latest 1-mo. change: -1.6%, 12-mo.: 14% Source: Author, based on BLS producer price index reports

  22. Producer price indexes for key inputs, 1/11-11/13 (Jan. 2011=100) No. 2 diesel fuel Concrete products Latest 1-mo. change: 0.1%, 12-mo.: 3% Latest 1-mo. change: -3.9%, 12-mo.: -6% Plastic construction products Asphalt paving mixtures & blocks Latest 1-mo. change: -0.1%, 12-mo.: 1% Latest 1-mo. change: 0.4%, 12-mo.: -1% Source: Author, based on BLS producer price index reports

  23. Summary for 2013 • Total construction spending: +4% to +7% (vs. 9% in ‘12) • Res +15% to +20% (vs. 15% in ‘12): MF very strong, SF ?? • Private nonres +1% to +4% (vs. 16% in ‘12): more manufacturing, warehouse, data centers; remodels of hotels, office, retail; flat power, health care, private ed • Public: -2% to -4% (vs. -3% in ‘12): highways 0%, ed -8%; federal spending-down; states-level; local-small decline • Materials costs: +1 to +2% Dec.-Dec. (vs. 1.4% in ‘12) • Labor costs: +2% to +2.5% Dec.-Dec. (vs. 1.6% in ‘12) • Labor supply: limited craft, professional shortages Source: Author

  24. Trends: 2014-2017 • Total construction spending: +6% to +10% per year • less SF housing, retail; declining public spending • new drivers: shale-based gas & oil; Panama Canal widening; more elderly & kids, fewer young adults • Materials costs: +1 to +3% (similar to CPI); rare spikes • Labor costs: +2.5% to + 5% • Labor supply: widespread shortages possible due to retirements, competition from other sectors, fewer vets Source: Author

  25. Summary for 2013, 2014-17 Source: 2012: Census, BLS; 2013-17: Author’s ests.

  26. AGC economic resources(email simonsonk@agc.org) • The Data DIGest: weekly 1-page email (subscribe at www.agc.org/datadigest) • monthly press releases: spending; PPI; national, state, metro employment • State and metro data, fact sheets • Website: http://www.agc.org/Economics

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