Year: 2017

Construction input prices expanded 0.7 percent in November and rose 5.6 percent on a yearly basis, the largest increase since November 2011, according to an Associated Builders and Contractors (ABC) analysis of  Bureau of Labor Statistics data released Tuesday. Nonresidential construction materials prices also expanded 0.7 percent for the month and 5.4 percent for the year. Crude petroleum prices rose 11 percent in November and are 31 percent higher than this time last year. 

“It would be an exaggeration to suggest that construction materials prices are spiking,” said ABC Chief Economist Anirban Basu. “However, in the aggregate, materials prices are now rising at their fastest rate in six years. As always, there are many factors at work, but undoubtedly one of them is the ongoing improvement in the global economy and continued rapid growth in a number of emerging nations. Growth has also been accelerating in much of the advanced world, including the United States, Japan and much of Europe.

“Global growth is expected to hasten next year,” said Basu. “That should induce stable-to-rising global commodity prices next year, at least during January. That said, there is little reason to believe that materials prices will skyrocket as they did during periods both prior to and immediately after the financial crisis. Higher prices trigger more quantity supplied, which in turn helps to suppress price momentum. 

“Still, contractors must be prepared to deal with steadily rising costs of delivering construction services,” said Basu. “This will place more pressure on estimators who must increasingly build into their bids the possibility of cost increases over the course of individual projects. Labor shortages continue to represent the number one concern of construction firms in America, but materials price inflation can no longer be ignored.”

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Providing more evidence of a strengthening economy, Associated Builders and Contractors’ (ABC) Construction Backlog Indicator (CBI) set a record as it expanded to 9.45 months during the third quarter of 2017, up 9.8 percent from the second quarter to the longest backlog reading in the eight-year history of the series.  CBI is up by 0.8 months, or 9.2 percent, on a year-over-year basis.

CBI is a leading economic indicator that reflects the amount of construction work under contract, but not yet completed.  CBI is measured in months, with a lengthening backlog implying expanding demand for construction services.  

“The latest backlog reading strongly suggests the post-2009 economic recovery is picking up steam and that the current construction spending cycle, in place since early 2011 for many contractors, is not on the verge of concluding,” said Basu. “Indeed, if anything, the CBI indicates that nonresidential construction firms are becoming busier due to a confluence of factors, including growing business confidence over the past year and a recent rise in energy prices, which is supporting more investment among energy explorers, producers and distributors.  

“With economic growth picking up recently, interest rates staying low, asset prices remaining high and confidence elevated among consumers and businesses alike, the nonresidential construction cycle stands to get even hotter in the near term.  That should represent a source of joy to contractors, but undoubtedly many are unnerved by growing pressures to secure suitably trained craftspeople who can support on-time, on-budget project delivery.  The upshot is that wage pressures will continue to build in the U.S. construction industry.  However, based on the most recent CBI, increasing delivery costs have not yet begun to meaningfully slow the nonresidential construction sector’s ongoing expansion cycle.” 

Highlights by Region

⦁ Backlog in the South surged to 11.3 months during the third quarter, the highest reading in the history of the series.  Many will conclude that this is at least partially due to the storms that raced across Texas, Florida and other communities during the quarter, but there are other factors at work, including the ongoing boom in commercial construction in the Dallas, Atlanta and Miami metropolitan areas.  
⦁ Increased activity in major cities along the Boston-to-Washington corridor continued to drive backlog data higher in the Northeast. At 10.2 months, the Northeast has matched its lengthiest backlog in the history of the series, in the fourth quarter of 2014. 
⦁ Backlog in the Middle States, where growth has been softer in places like Illinois and Kansas, shrank by 0.3 months during the third quarter. Still, regional backlog can be characterized as stable. 
⦁ Backlog in the West was slightly shorter during the third quarter and stands at roughly the same level as one year ago.  Given the elevated levels of construction apparent in markets like Las Vegas, Portland and San Jose, one can only conclude that the region’s lower average backlog level compared to other regions is at least partially attributable to a very competitive environment associated with an entrepreneurial climate that spawns more start-up construction firms than other parts of the country.  Wildfires impacting much of California also likely stalled a certain level of construction and contractual activity during the third quarter. 

Highlights by Industry 

⦁ Backlog in the commercial/institutional segment expanded briskly, increasing by nearly a full month during the third quarter, and now stands at 9.31 months. 
⦁ Average backlog in the heavy industrial category fell to 4.46 months during the third quarter, continuing what has been two years of steady shrinkage aligned with observed declines in construction spending related to U.S. manufacturing.
⦁ Backlog in the infrastructure category expanded during the third quarter to 12.53 months, the highest reading on record for the segment and an indication that improving state and local government finances may finally be translating into higher capital spending.  

Highlights by Company Size

⦁ Large firms, those with annual revenues in excess of $100 million, experienced a collective average backlog increase to 13.8 months during the third quarter. Despite the sharp quarterly rise, backlog in the category is virtually unchanged from the same time one year ago. 
⦁ Backlog among firms with annual revenues between $50 million and $100 million also surged during the third quarter, increasing by more than two months. Backlog in this category stands at levels last observed in 2013 when the construction recovery began to heat up in earnest. 
⦁ Backlog among firms with between $30 million and $50 million in annual revenues lengthened modestly to 11.4 months during the third quarter, the third highest reading on record. 
⦁ Backlog for firms with annual revenues less than $30 million remain remarkably stable at 7.7 months.  For the past eleven quarters, backlog for this group, which is heavily tilted toward subcontractors, has remained between 7.2 and 8.1 months.

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WASHINGTON, Dec. 8—The nation’s construction sector added 24,000 net new jobs in November, representing a 0.3 percent month-over-month increase, according to an Associated Builders and Contractors (ABC) analysis of Bureau of Labor Statistics data released today. 

Nonresidential construction employment added 8,600 net new jobs in November, a figure that would have been substantially higher were it not for heavy and civil engineering, which lost 7,800 for the month. In October, nonresidential construction firms shed 3,600 net positions.
 
The construction industry unemployment rate increased by 0.5 percentage points and now stands at 5 percent. While this increase is likely due to seasonal factors, an increase in the construction industry unemployment rate is not necessarily a bad indicator given ongoing skilled labor shortages. The unemployment rate for all nonfarm industries—a figure that is seasonally adjusted—remained unchanged at 4.1 percent in November and remains at a 17-year low.  

“Today’s employment report was quite good,” said ABC Chief Economist Anirban Basu. “The nation added 228,000 net new jobs in November, which makes it the second consecutive strong month for employment growth. Some of this performance may be attributable to interrupted hiring in August and September due to storms. However, for the most part, today’s report is consistent with long-term trends indicating strong demand for human capital and an economy poised to avert a downturn in the near term.”

The labor force participation rate remained unchanged at 62.7 percent, quite low by historic standards. Labor force participation remains low for a host of reasons, including the ongoing large-scale retirement of baby boomers, a significant fraction of whom have skills pertinent to the delivery of construction services.

“Indeed, the nation’s economy is humming,” said Basu “With consumer confidence remaining elevated and wage pressures continuing to build, there is little reason to believe that America’s consumer-led recovery is about to soften. This is good news for construction firms,  particularly those that specialize in private construction,” said Basu.

“The wildcard is business investment. If ongoing efforts to deregulate industries are ultimately combined with productive tax reform, the economy could become turbocharged as significant growth in business spending joins existing consumer spending momentum to return the United States to sustained growth of 3 percent or better,” said Basu.

Even in the absence of this long-desired dynamic, the nonresidential building construction sector has managed to increase employment by 3.1 percent during the past year, while the nonresidential specialty trade contractor segment has increased employment by 2.7 percent.  

“Unfortunately, investment in infrastructure continues to be inadequate in much of the nation, which represents a significant limit to the upside. Correspondingly, heavy and civil engineering employment is up only 1 percent over the past year,” said Basu.

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The majority of commercial and industrial contractors are confident about sales growth, profits and staffing levels heading into 2018, according to the latest Associated Builders and Contractors (ABC) Construction Confidence Index (CCI). Despite rising construction labor and materials costs, 55 percent of contractors expect their profit margins to expand in the first half of 2018.

“There are many reasons for confidence among the nation’s construction firm leaders,” said ABC Chief Economist Anirban Basu. “American wealth has never been greater in absolute terms as the economy experiences faster wage growth, surging equity markets and rising home values. Consumer confidence is at a 17-year high, while unemployment is at a 17-year low.

“Despite the completion of approximately eight and a half years of economic recovery, both inflation and interest rates remain low,” said Basu. “The combination of elevated wealth and confidence with low borrowing costs drives spending and investment, which supports higher demand for construction services.” 

All three diffusion indices in the survey remain above the threshold of 50, which signals ongoing optimism.   

The CCI for sales expectations fell from 59.7 to 57;
The CCI for profit margin expectations fell from 56 to 53.5;
The CCI for staffing levels fell from 59.5 to 56.7.

In recent quarters, certain commercial segments have been prone to generate especially large increases in construction spending. These include lodging, office and amusement/recreation. Therefore, commercial contractors are particularly upbeat. Contractors whose businesses rely more heavily on public work remain less ebullient.

The following chart reflects the distribution of responses to ABC’s most recent surveys. 

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The U.S. Senate passed sweeping tax reform legislation on Dec. 2, overcoming a number of setbacks over the course of a long week.  The effort to win over holdouts and cobble together the necessary votes led to a number of late-breaking changes to the bill, culminating in what was essentially a party line vote, with Senator Bob Corker (R-Tenn.) as the only dissenting Republican.

The process now moves into the final phase, as the Senate and House seek to resolve the differences between their respective bills.  Last night the House voted on a motion to go to conference on the tax reform bill.

Named conferees will be:
Ways & Means Committee: Kevin Brady (R-Texas), Devin Nunes (R-Calif.), Peter Roskam (R-Ill.), Diane Black (R-Tenn.), Kristi Noem (R-S.D.)
Natural Resources Committee: Mike Bishop (R-Mich.), Don Young (R-Alaska)
Energy & Commerce Committees: Greg Walden (R-Ore.), John Shimkus (R-Ill.)

On Dec. 6, the Senate will take up their motion to go to conference and name their conferees.

Once in conference, we expect an initial public meeting to start the conference the week of Dec. 11. After that, much of the conference work will be done in a closed setting. The timing of the conference is unpredictable, but it points to a conference report introduced in both chambers by the week of Dec.18 and passed by both the House and Senate by Dec. 22 (before a new Senator from Alabama is certified), and signed by the president by the end of the year.

ABC is working with both chambers to see that AMT repeal is included in the final package (it was included in the House bill).  

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WASHINGTON, Dec. 1 – Nonresidential construction spending rose 2.1 percent in October, totaling $717.6 billion on a seasonally adjusted basis, according to an Associated Builders and Contractors (ABC) analysis of data released by the U.S. Census Bureau. The level of spending, however, remains virtually unchanged from a year ago. 

Ten of the sixteen subcategories experienced positive growth, with educational spending topping the list with an increase of 9 percent. Public safety (up 6.8 percent), office (up 5.3 percent) and conservation and development (up 4.3 percent) were the next highest subcategories. Religious (down 3.7%) and amusement and recreation (down 3.5%) spending saw the largest decreases over the previous month.

“One could scarcely imagine circumstances more consistent with rapid growth in nonresidential construction spending,” said ABC Chief Economist Anirban Basu. “The U.S. economy is humming, coming up on two consecutive quarters of 3 percent growth on an annualized basis. Consumers, who have been the driving force of the recovery to date, are more confident than they have been in 17 years.

“Stock prices have surged, due in part to liquidity swirling around the growth,” said Basu. “The worldwide economy has not been this healthy for roughly eight decades and global policymakers continue to pursue pro-growth agendas.  Interest rates remain extraordinarily low, resulting in greater demand for assets that have the capacity to generate significant income, including commercial real estate. On top of this, there are hopes in corporate America for tax reform, which would presumably accelerate economic growth and bolster corporate profitability.

“In October, nonresidential construction spending rose as one might expect given broader macroeconomic dynamics. There were even signs of life in certain publicly financed categories,” said Basu. “It is likely that construction growth will pick up further next year due to numerous factors, including growing confidence among policymakers in rapidly expanding communities. That confidence should translate into more spending on public works. Of course, whether this logic prevails will depend in part on tax reform legislation outcomes in Congress.” 

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WASHINGTON, Dec. 4— In its survey of Florida construction firms for the third quarter of 2017, Associated Builders and Contractors (ABC) finds the confidence to fill open positions over the next six months remains low. Continued hurricane rebuilding efforts will likely exacerbate the challenge to find enough skilled labor in Florida to meet the level of project demand. Confidence in other areas of the survey remains high.

ABC conducts a quarterly construction confidence survey in Florida to supply stakeholders with information regarding contractor perceptions in four areas: 

• Staffing Levels:  Do contractors expect to increase hiring?
• Worker Availability:  Will filling open positions become more challenging?
• Workforce Investment:  Will investment in training expand?
• Sales:  Will revenues rise or fall over the next six months?  

  
The survey supports computations of the Florida Construction Confidence Index (CCI), a diffusion index. Readings above 50 indicate growth or improvement, while readings below 50 are unfavorable. Because response rates are high, ABC is able to provide results for a number of Florida sub-markets.

Florida remains among the nation’s most active construction markets, ranking fifth among all states in terms of net new construction job creation. While CCI in the staffing levels category fell from 76.8 in the second quarter to 74 in the third, the reading continues to indicate that contractors will continue increasing staffing levels over the next six months. A minuscule 2 percent of respondents indicate an expectation that their staffing levels will decline over the near term. 

The same can be said regarding sales expectations. While confidence has waned slightly from the second quarter, contractors remain upbeat from the perspective of anticipated revenue expansion. 

By contrast, worker availability remains a source of pessimism among contractors, with more than 68 percent of respondents indicating that filling positions will become more difficult over the next six months.  This is remarkable given how difficult it has already been to secure skilled craftspeople.  Only 2 percent of respondents indicate that finding workers will become easier over the coming six months.  Given the onset of rebuilding after summer storms, skilled labor shortages are likely to become even more dramatic in late 2017 and into early 2018. 

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On Nov. 28, The Senate Budget Committee voted to advance S.1, the Tax Cuts and Jobs Act on a party line vote of 11-10. Senators Ron Johnson (R-Wis.) and Bob Corker (R-Tenn.) voted to send the bill to the Senate floor after originally withholding their support.

ABC is working diligently on behalf of our members to make sure you are paying a fair and effective tax rate. On Nov. 29, ABC sent an Action Alert to members asking them to urge their Senators to support the Tax Cuts and Jobs Act when it goes to the Senate floor for a vote this week.

Newsline will continue to update readers on any congressional action regarding tax reform.

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WASHINGTON, Nov. 28—The not seasonally adjusted (NSA) national construction unemployment rate was 4.5 percent in October, down 1.2 percent from a year ago, the U.S. Bureau of Labor Statistics (BLS) reported. It was the lowest October rate on record, matching the rate in 2006, according to analysis released today by Associated Builders and Contractors (ABC). Further, the construction industry employed 180,000 more workers than in October 2016. 

Construction unemployment rates were also down in 44 states on a year-over-year basis, unchanged in one (South Dakota) and up in five states.

“Recovery from the various hurricanes that hit the United States appeared to be a major factor in October construction employment. Some northern states that would normally have an increase in their NSA construction unemployment rate had flat or down rates. This is likely due to some construction workers leaving those states to help with hurricane recovery,” said Bernard M. Markstein, Ph.D., president and chief economist of Markstein Advisors, who conducted the analysis for ABC. “The need for construction workers as part of recovery and rebuilding efforts after this year’s devastating hurricanes, floods and wildfires is providing employment for workers who normally would be subject to seasonal layoffs.”

Because these industry-specific rates are not seasonally adjusted, national and state-level unemployment rates are best evaluated on a year-over-year basis. The monthly movement of the rates still provides valuable information, although extra care must be used in drawing conclusions from these monthly movements.

From the beginning of the data series in 2000 through 2016, the monthly movement in the national NSA construction unemployment rate from September to October has recorded a decrease five times and an increase 12 times. This year, the rate was down 0.2 percent from September. Among the states, 25 had decreases in their October estimated rate from September, 21 were up and four (California, Louisiana, Oklahoma and Pennsylvania) had no change. 

The Top Five States

The states with the lowest estimated October NSA construction unemployment rates in order from lowest to highest were:

1. Hawaii, 2 percent
2. Idaho, 2.3 percent
3. Colorado, 2.5 percent
4. Vermont, 2.7 percent
5. Iowa, 2.8 percent

Hawaii’s number one ranking was a jump from 16th lowest in September, tied with Kansas and North Carolina. It was the state’s lowest October rate since the beginning of the estimates in 2000. Further, Hawaii had the largest monthly drop and the fifth largest year-over-year decline in its rate among the states.

Note that Hawaii’s unemployment rate is a rate for construction, mining and logging combined. The data to estimate a construction unemployment rate alone are not available for either Hawaii or Delaware.

Idaho and Colorado, which were in the top five in September, remained in the top five in October. This was Idaho’s lowest October estimated rate on record. Colorado slipped a few spots—it had September’s lowest construction unemployment rate. Nonetheless, this was the state’s second lowest October rate on record, after its 2.2 percent rate in 2000.

Vermont’s fourth place ranking in October was up from the eighth lowest rate in September (tied with Oregon and Virginia). It was the state’s lowest October rate on record, matching its 2014 rate.

Iowa made a big improvement in October. The state had the third largest drop in its rate from September, when it had the 22nd lowest rate. This was also its lowest estimated October rate on record.

North Dakota, which ranked third lowest in September based on revised data (previously reported as the second lowest rate), tied with Massachusetts and Texas for seventh lowest, with a 3 percent October estimated NSA construction unemployment rate. 

Nebraska, which ranked second lowest in September based on revised data (previously reported as the third lowest rate), fell to the 16th lowest rate, tied with Wyoming. Wyoming had the fifth lowest rate in September. 

The Bottom Five States

The states with the highest October NSA construction unemployment rates in order from lowest to highest were:

46. Pennsylvania, 6.4 percent
47. New Jersey, 6.5 percent
48. Illinois, 7.1 percent
49. New Mexico, 8.4 percent
50. Alaska, 15 percent

Three of these states—Alaska, Illinois and New Mexico—were also among the five states with the highest construction unemployment rates in September. Alaska had the highest rate in the nation for the third month in a row. The state also had the largest monthly increase, up 4.8 percent from September, and the largest year-over-year increase, up 1.6 percent.

For the third consecutive month, New Mexico had the second highest rate in the country. It was also the eighth month in a row that the state has had either the highest or second highest construction unemployment rate in the nation. 

Illinois had the third highest estimated NSA construction unemployment rate in October, the same as in September (based on revised data; previously reported as the fourth highest rate). Still, it was the state’s lowest October construction unemployment rate since the 4.7 percent rate in 2006.

New Jersey fell six spots from its September ranking, when it had a 5.7 percent rate (tied with Montana, Ohio and West Virginia). The state’s 6.5 percent construction unemployment rate was its second lowest October rate after last year’s 6.4 percent rate.

There was only slight movement for Pennsylvania, as it dropped one spot from September’s ranking. Nonetheless, this was the state’s lowest October rate since 2006’s 4.4 percent rate. 

Connecticut, which had the fourth highest rate in September (based on revised data, previously reported as the third highest rate), improved to the 14th highest rate in October with a 5.2 percent rate, tied with Delaware and Montana. It was the state’s lowest estimated NSA construction unemployment rate since the 4.7 percent rate in October 2001. It also had the nation’s fourth largest decrease from September, down 1.4 percent.
 
Meanwhile, Rhode Island, which had the fifth highest rate in September, notched up to sixth highest rate in October—6.2 percent. It was the state’s lowest October construction unemployment rate since the 5.6 percent rate in October 2006.

Here is the complete list of the latest state rankings. 

To better understand the basis for calculating unemployment rates and what they measure, see the article Background on State Construction Unemployment Rates.

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2016 CONSTRUCTION SPENDING: TOP FIVE STATES
The fastest growth was in the West and the South. The first state outside of those two regions in the ranking of construction growth rates is Rhode Island with the 16th largest increase (up 4.9 percent). In 2016, the top five states for the increase in their real value added from construction in order from highest to lowest were: 

1. Idaho, up 10.7 percent 
2. Georgia and South Carolina (tie), up 9.4 percent 
4. Florida, up 9.3 percent
5. Oregon, up 9.1 percent

Idaho had the highest percentage contribution from construction, even though state real GDP advanced a respectable, but more modest, 1.8 percent. Georgia slipped from its number-one ranking in 2015, while South Carolina made a significant jump from 17th to second place.

Florida’s ranking of number four is down from second place in 2015 when its real construction spending was 11.1 percent. Oregon saw a big improvement from 33rd place in 2015.

2016 CONSTRUCTION SPENDING: THE BOTTOM FIVE STATES
All of the bottom five states suffered from the effects of low energy prices.

46. Mississippi, down 2.5 percent 
47. West Virginia, down 7.5 percent
48. North Dakota, down 10.5 percent
49. Wyoming, down 11.5 percent
50. Alaska, down 13.2 percent

Alaska has struggled over the last few years. Not only did it experience the largest drop in real private construction spending in 2016, but it also experienced the second largest decrease in state GDP in the nation, down 5 percent. Real private construction spending has been down every year starting in 2011, except for 2015 (up 0.2 percent).

Although Wyoming improved its 2016 ranking—it had the largest decrease in 2015 at 6.6 percent—the 11.5 percent plunge was an acceleration of a bad outcome.  North Dakota had the third largest decline in its real private construction spending in 2016 and 2015, down 10.5 percent and 4.1 percent, respectively. However, the state’s growth in construction spending ranked in the top 10 from 2008 through 2014.

West Virginia had the fourth largest decline in its real private construction spending in 2016 and 2015, down 7.5 percent and 3.1 percent, respectively. Mississippi’s 2016 decrease represents a slowdown in the decline in construction from 2014 and 2015, when private construction activity fell 8.6 percent and 5.6 percent, respectively.

Read the full report here. 

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