Defying Usual Seasonal Decline, CMD’s January Starts Rose 9.8%

Article source: CMDGroup

CMD announced today that January’s level of U.S. construction starts, excluding residential work, was $24.7 billion, an increase of 9.8% versus December. The nearly double-digit percentage increase was noteworthy since there is usually (i.e., average over 10-years-plus) a December-to-January decline, due to seasonality, of 8.5%.

Compared with January of 2015, the latest month’s starts level was +12.9%. Relative to average non-residential starts in January over the preceding five years, 2011 to 2015, the gain was +18.6%.

The starts figures throughout this report are not seasonally adjusted (NSA). Nor are they altered for inflation. They are expressed in what are termed ‘current’ as opposed to ‘constant’ dollars.

‘Non-residential building’ plus ‘engineering/civil’ work accounts for a considerably larger share of total construction than residential activity. The former’s combined proportion of total put-in-place construction in the Census Bureau’s December report was 63%; the latter’s was 37%.

CMD’s construction starts are leading indicators for the Census Bureau’s capital investment or put-in-place series. Also, the reporting period for starts (i.e., January 2016) is one month ahead of the reporting period for the investment series (i.e., December 2015.)

The latest Employment Situation Report from the Bureau of Labor Statistics (BLS) records an 18,000 increase (seasonally adjusted) in the total number of construction jobs in January, but that fell short of the pick-up in each of the final three months of 2015. December was +48,000; November, +65,000; and October, +33,000.

Year-over-year employment in construction in January was +4.2%, more than double the rate for all jobs (+1.9%), but the pace of increase has been decelerating since December 2014’s +6.1%. Construction’s not-seasonally-adjusted unemployment rate in January was 8.5%. In January 2015, it had been 9.8%; in January 2014, 12.3%; and in January 2013, 16.1%.

Before there can be on-site construction activity, projects must be contemplated and planned by owners and rendered into working drawings by design professionals. Total jobs in architectural and engineering services in January were +0.2% month to month and +2.3% year over year. They are approaching, but have not yet reached, their pre-Great Recession peak.

All three major type-of-structure categories managed month-to-month starts increases in January. Institutional (+21.3%) was the leader, followed by heavy engineering/civil (+13.6%), with commercial (+3.8%) also ahead, but to a modest degree. The normally smaller-dollar-volume category of industrial/manufacturing (-49.1%) fell back by almost half, but it can swing wildly from one month to the next, based on whether or not there is a go-ahead for a mega project.

Comparing standalone January 2016 with its counterpart in 2015, there were increases in all categories. Engineering (+20.1%) recorded the largest leap forward, followed by commercial (+13.2%) and industrial (+10.3%). The improvement in institutional (+2.6%) was restrained.

Within engineering starts in January, ‘road/highway’ work was dominant, accounting for nearly 50% of the category’s total. Such street starts, in the latest period, were +42.8% month to month (m/m) and +39.3% year over year (y/y). ‘Water and sewage’ work is the second-largest sub-component of engineering and in January, it was -0.2% m/m, but +9.2% y/y. Also significant in the civil category, ‘bridge’ starts were +6.3% m/m and +56.1% y/y.

The ‘hotel/motel’ and ‘retail/shopping’ sub-components tied for largest dollar volumes in the commercial category in Table 1. The former was an outstanding +141.1% m/m and +136.7% y/y, while the latter also impressed with +40.0% m/m and +63.1% y/y. Private office buildings continued to disappoint, -3.4% m/m and -20.3% y/y, but government office buildings quickened their pace, +66.0% m/m and +65.2% y/y.

Accounting for nearly 60% of institutional starts in January, the ‘school/college’ sub-category was +39.7% m/m and +10.2% y/y. ‘Hospital/clinic’ work accounts for the next biggest slice of institutional projects and in January, it was +11.8% m/m, but -19.7% y/y.

Across all structure types, there were four sub-categories that performed much better in the kick-off month of 2016 than on average during January of the previous five years: ‘hotels/motels’, +227.7%; ‘roads/highways’, +52.4%; ‘bridges’, +51.8%; and ‘warehouses’, +34.3%.

Table 2 below re-orders and provides more detail on some of the type-of-structure categories in Table 1. The reasons for this ‘second view’ are set out in the footnote.

The ‘Top 10’ projects are widely dispersed geographically. Ten states are represented. In other words, no state accounts for more than one groundbreaking. Also, unlike some earlier months, there were no individual projects that topped $1 billion in value.

The 12-month moving average trend-line graphs show only one non-residential building category, ‘retail’, sloping higher while engineering/civil work has three subsets gently climbing upwards − ‘roads/highways’, ‘water/sewage’ and ‘bridges’. Still struggling are ‘private office buildings’, ‘schools/colleges’ and ‘hospitals/clinics’.

The economy-wide unemployment rate in January tightened to 4.9%. Year-over-year compensation increases were a consistent +2.5% hourly and weekly, both for all workers and excluding supervisory personnel. Omitting bosses, the construction sector’s wage hikes were a little slower, +1.6% hourly and +1.9% weekly. Including them, its earnings gains rose to +2.1% hourly (still slower than for all jobs), but +2.9% weekly (faster than for all jobs).

The value of construction starts each month is summarized from CMD’s database of all active construction projects in the U.S. Missing project values are estimated with the help of RSMeans’ building cost models.

CMD’s non-residential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are ultra-large, has a history of being more volatile than many other leading indicators for the economy.

A “start” is determined by taking the announced bid date and adding a short time lag (30 to 60 days). CMD continues to follow the project via its network of researchers. If it is abandoned or re-bid, the start date is updated to reflect the new information.

TABLE 1: VALUE OF UNITED STATES CONSTRUCTION STARTS
(BILLIONS OF CURRENT $S US) – JANUARY 2016 – CMD

*Includes transportation termninals and sports arenas.

Source: CMD Research Group.
Table: CMD.

TABLE 2: VALUE OF UNITED STATES CONSTRUCTION STARTS
CMD INSIGHT VERSION – JANUARY 2016
Arranged to match the alphabetical category drop-down menus in INSIGHT

Table 1 conforms to the type-of-structure ordering adopted by many firms and organizations in the industry. Specifically, it breaks non-residential building into ICI work (i.e., industrial, commercial and institutional), since each has its own set of economic and demographic drivers. Table 2 presents an alternative, perhaps more user-friendly and intuitive type-of-structure ordering that matches how the data appears in CMD’s on-line product ‘Insight’.

Source: CMD.
Table: CMD.

TABLE 3: VALUE OF UNITED STATES NATIONAL
CONSTRUCTION STARTS – JANUARY 2016 – CMD
Billions of current $s, not seasonally adjusted (NSA)

Data Source and Table: CMD.

TABLE 4: U.S. YEAR-TO-DATE REGIONAL STARTS
NON-RESIDENTIAL CONSTRUCTION * — CMD

*Figures above are comprised of non-res building and engineering (i.e., residential is omitted).

Data Source and Table: CMD.

Tags: Alex Carrick, architect, build, Canada, CMD, CMD Group, Economic, Economy, non-resident, resident, US

Category: CMD Group

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