The AEC Lens
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »
ConstructConnect’s YTD Starts +2% after May’s Rise of +5%
June 20th, 2017 by Alex Carrick, Chief Economist at ConstructConnect
Article source: ConstructConnect
ConstructConnect announced today that May construction starts, excluding residential activity, were +5% versus April. The modest rise fell a little short of the usual percentage change between April and May, due to seasonality, of +8%.
Versus May of last year, nonresidential starts in the fifth month of this year were +2.0%.
Compared with January through May of last year, the year-to-date volume of starts in 2017 has been +1.9%.
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.
‘Nonresidential 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 April report was 56%; the latter’s was 44%.
ConstructConnect’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., May 2017) is one month ahead of the reporting period for the investment series (i.e., April 2017.)
Jobs in U.S. construction moved higher by +11,000 in May, after staying flat in April and March, according to the latest Employment Situation Report from the Bureau of Labor Statistics (BLS). Thanks to strong hiring by the sector in January (+34,000 jobs) and February (+54,000 jobs), monthly average jobs creation in construction so far this year has been +20,000, a decent improvement over last year’s January-to-May average of +12,000.
Year-over-year employment in construction is now +2.9%, which compares favorably with the nation’s ‘all jobs’ performance of +1.6%. But +2.9% is slower by about half than the post-Great Recession peak gain of +6.1% year over year realized in December 2014. The NSA unemployment rate in construction is now 5.3%, about on a par with last May’s 5.2%.
Month-to-month employment in architectural and engineering services has shown no movement for two periods in a row, but the year-over-year jobs change in the design professions has been a commendable +3.1%. Turning owners’ capital spending wishes into visualizations and then creating ‘assembly instructions’ are key initial steps prior to work proceeding at job sites.
May’s month-to-month (m/m) increase in total nonresidential starts (+5.2%) was led by the subcategory institutional (+16.4%), with assists from commercial (+8.1%) and industrial (+6.5%). Only heavy engineering/civil (-4.5%) failed to make a positive contribution.
The May-2017-over-May-2016 (y/y) rise in total starts (+2.0%) was the net result of two subcategories that were up and two that were down. On the plus side were heavy engineering (+10.4%) and institutional (+6.5%). Recording minuses were commercial (-10.0%) and industrial (-6.4%).
The small climb (+1.9%) in year-to-date (ytd) starts so far in 2017 (i.e., versus January to May 2016), has been entirely due to buoyancy in heavy engineering (+26.9%), while institutional (-1.2%) has been mildly down, commercial (-8.3%) has been more emphatically in the doldrums and industrial (-29.2%) has suffered a sizable drop.
With a 41% share, the largest subcomponent of heavy engineering starts so far this year has been ‘road/highway’ work. The percentage changes for ‘street’ starts in May were uniformly upbeat: +42.4% m/m; +25.8% y/y; and +17.4% ytd. Second most important in civil work to date in 2017 (with a 20% share) has been ‘water/sewage’ work, but it has faltered according to all three period-to-period measures: -2.8% m/m; -22.9% y/y; and -1.1% ytd.
Institutional starts continue to be dominated by the ‘school/college’ segment, with a 55% share. Groundbreakings on education facilities in May were better m/m (+4.9%), but worse both y/y (-11.5%) and ytd (-7.3%). ‘Hospitals/clinics’ have taken the second largest slice (14%) of institutional starts so far in 2017. They had a great May both m/m (+119.7%) and y/y (+80.2%), but still fell behind ytd (-15.0%).
‘Private offices’ (with a 21% share) and ‘hotels/motels’ (with a 19% share) have been accounting for the largest chunks of commercial starts through the first five months of this year. In May, the period-to-period results for the former ranged from gloomy to bland: -41.0% m/m; -59.0% y/y; but an almost level -0.8% ytd. The results for the latter were more bullish: -11.6% m/m; and -2.5% y/y; but +36.8% ytd.
‘Retail/shopping’ (13% of commercial) in May surprised on the upside m/m (+7.4%), but stayed depressed by half both y/y (-51.1%) and ytd (-50.2%). ‘Warehouse’ work (12% of commercial) was -9.9% m/m and -23.7% y/y, but managed a strong +34.0% ytd.
Table 2 reorders 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 12-month moving average trend graphs are a mix of downward-sloping curves for nonresidential building starts that are counterbalanced by upward-sloping patterns for heavy engineering starts. Within nonresidential building work, institutional is holding steady, but commercial is in decline. Retail’s descent has been especially severe. Within engineering, a long rising incline for bridges has become steeper of late and roads/highways have taken a sharp turn for the better to this point in 2017.
For all workers in the economy, year-over-year average wage gains in May were +2.5% both hourly and weekly. Construction workers were in close alignment. Their average hourly earnings were +2.2% y/y and their average weekly earnings, +2.5% y/y. For all workers not including supervisory personnel, both average hourly and average weekly wage gains in May were +2.4% y/y. Nonboss construction workers did better at +2.5% hourly and +3.3% weekly.
The value of construction starts each month is summarized from ConstructConnect’s database of all active construction projects in the U.S. Missing project values are estimated with the help of RSMeans’ building cost models.
ConstructConnect’s nonresidential 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.
ConstructConnect has now moved to a better-targeted and research-assigned ‘start’ date. Prior to January 2017, the ‘start’ date was recorded as occurring within 30 to 60 days of the announced bid date. In concept, a ‘start’ is equivalent to ground being broken for a project to proceed. If work is abandoned or re-bid, the ‘start’ date is revised to reflect the new information.
TABLE 1: VALUE OF UNITED STATES
CONSTRUCTION STARTS – MAY 2017
Source: ConstructConnect Research Group and ConstructConnect.
TABLE 2: VALUE OF UNITED STATES
Table 1 conforms to the type-of-structure ordering adopted by many firms and organizations in the industry. Specifically, it breaks nonresidential 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 ConstructConnect’s on-line product ‘Insight’.
TABLE 3: VALUE OF UNITED STATES
Visit Article source: ConstructConnect for TABLE 3 Content
TABLE 4: U.S. YEAR-TO-DATE REGIONAL STARTSData Source and Table: ConstructConnect.
*Figures above are comprised of nonres building and engineering (i.e., residential is omitted).
Data Source and Table: ConstructConnect.