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 » October’s Nonresidential Construction Starts -28% Ytd, but Level M/MNovember 24th, 2020 by Alex Carrick, Chief Economist at ConstructConnect
October Starts Moved Sideways ConstructConnect announced today that the latest month’s volume of construction starts, excluding residential work, was $25.9 billion, nearly a match (-0.4%) for prior-month September’s $26.0 billion (originally reported as $24.3 billion). October’s year-to-date figure, however, remained down significantly compared with the first ten months of last year, -27.8%. Given that October starts usually feature a mild seasonal decline, due to the arrival of cooler weather, it’s good news that the latest month stayed almost level (-0.4%) with September. But it’s important to record that October 2020 was way down compared with October 2019, -41.5%. Often, in 2020, the individual monthly figures when compared with the same month of 2019 have fallen short with respect to mega proj- ects of a billion dollars of more each. 2019 was an exceptional year for ultra-large project initiations. (There were 35 of them, adding to $79 billion and 15% of total nonresidential starts.) May and August 2019 were the peak months for ‘megas’. October 2019, though, was run-of-the-mill for mega project start- ups. It included three such undertakings totaling $6.1 billion. (Two of the three were rapid transit projects.) In October 2020 starts, there is only the one mega project, a steel mill in Kentucky for $1.7 billion. Nonresidential Building Starts More to Blame than Engineering The -27.8% change for total nonresidential starts to date in 2020 is due considerably more to weakness in nonresidential building work, -33.0% (i.e., down by one-third), than to the softening in engineering groundbreakings, -18.4%. Tables 2 and 3 set out the regional patterns of nonresidential building and heavy engineering/civil starts through October of this year. In nonresidential building, the South and Northeast Regions are turning in about equally anemic performances, -39% and -38% respec- tively, with the West not doing so well either, -30%. The Midwest, -15%, has been least affected by the general downturn. TABLE 1: VALUE OF UNITED STATES NONRESIDENTIAL CONSTRUCTION STARTS — OCTOBER 2020 (ConstructConnect®)
* Includes transportation terminals and sports arenas. TABLE 2: U.S. YEAR-TO-DATE REGIONAL NONRESIDENTIAL BUILDING CONSTRUCTION STARTS — ConstructConnect®
Jan-Oct 2019 Jan-Oct 2020 % Change The large-population states that have seen the biggest drops in their nonresidential building starts year to date in 2020 have been: Washington, -57.2%; Georgia, -55.5%; Texas, -54.6%; Pennsylvania, -44.2%; Massachusetts, -40.7%; and New York, -37.1%. California and Florida have encountered declines of approximately the same mag- nitude, -24.0% and -22.4%. Only Missouri, +16.3%, has managed a sig- nificant increase. In regional engineering starts year to date, the South, Northeast and Midwest are down between one-quarter and one-fifth, but the West is hardly behind at all, -3.4%. Engineering starts are +27.1% ytd in Cali- fornia and +22.0% in Washington. Again, go-aheads for transit proj- ects have been the main contributors to the ‘starts’ success. Oregon is alone among the three Pacific Coast states with a year-to-date decline in engineering starts, -11.3%. A Slow Patch for GDP ‘til March? With coronavirus infections back in full swing, and economy re- openings being sideswiped, the earlier surge in jobs restoration has become more muted. Table 4 records jobs claw-back ratios for the total economy and major sub sectors. The claw-back ratio is the number of jobs recovered since April versus the outsized number of jobs lost between February and April, when COVID-19 first struck Continued on page 3 TABLE 3: U.S. YEAR-TO-DATE REGIONAL HEAVY ENGINEERING/CIVIL CONSTRUCTION STARTS — ConstructConnect®
Census Bureau’s geographic designations. For which states are in each region, see U.S. Regional Key. The large-population states that have seen the biggest drops in their nonresidential building starts year to date in 2020 have been: Washington, -57.2%; Georgia, -55.5%; Texas, -54.6%; Pennsylvania, -44.2%; Massachusetts, -40.7%; and New York, -37.1%. California and Florida have encountered declines of approximately the same mag- nitude, -24.0% and -22.4%. Only Missouri, +16.3%, has managed a sig- nificant increase. In regional engineering starts year to date, the South, Northeast and Midwest are down between one-quarter and one-fifth, but the West is hardly behind at all, -3.4%. Engineering starts are +27.1% ytd in Cali- fornia and +22.0% in Washington. Again, go-aheads for transit proj- ects have been the main contributors to the ‘starts’ success. Oregon is alone among the three Pacific Coast states with a year-to-date decline in engineering starts, -11.3%. A Slow Patch for GDP ‘til March? With coronavirus infections back in full swing, and economy re- openings being sideswiped, the earlier surge in jobs restoration has become more muted. Table 4 records jobs claw-back ratios for the total economy and major sub sectors. The claw-back ratio is the number of jobs recovered since April versus the outsized number of jobs lost between February and April, when COVID-19 first struck U.S. REGIONAL KEY (Census Bureau)
Census Bureau’s geographic designations. For which states are in each region, see U.S. Regional Key. TABLE 4: MONITORING THE U.S. EMPLOYMENT RECOVERY — OCTOBER 2020
and stay-at-home directives brought much of economic activity to a standstill. The jobs-recovery ratio is still only half (50.9%). It will need to rise to at least 90% before there will be significantly greater confidence the economy is on solid footing once again. Speaking of 90%, the drug company, Pfizer, has announced development of a coronavirus vaccine that is effective to that degree and which may be available in abundant supply by March 2021, provided further testing raises no alarms. There are sound reasons to be more optimistic concerning the second quarter of next year and onwards. Achieving decent GDP growth in Q4 2020 and Q1 2021, however, will continue to be chal- lenging. The U.S. construction sector, which was largely judged to be ‘essential’ in the Spring, maintained workflows and work forces better than most other sectors. From Graph 1, the year-over-year record of employment in construction, at -2.6%, is presently second-best (tech- nically, second least-negative) among all sectors, trailing only financial activities, -0.9%. Also, worth noting, is that year-over-year retail sales by building material suppliers never fell into negative territory earlier this year and are continuing to be buoyant, +19% in September. The nearly one-fifth increase in building material sales has been supported by DIY work, good single-family housing starts and an accompanying run-up in soft- wood lumber prices, +81% year over year. GRAPH 1: Y/Y JOBS CHANGE, U.S. TOTAL INDUSTRY & MAJOR SUBSECTORS – OCTOBER 2020 (BASED ON SEASONALLY ADJUSTED PAYROLL DATA)
Sifting the Data to Find Good News among Type-of-structure Sub-categories The month-over-month (m/m) hold-the-line performance (-0.4%) of total nonresidential starts in October resulted from a combination of increases in the industrial (+36.5%), engineering/civil (+6.3%) and institutional (+2.5%) sub-categories that couldn’t quite withstand the pullback that took place in commercial (-21.0%). The -41.5% fall in total nonresidential construction starts in October of this year versus October of last year (y/y) was widespread among sub-categories: commercial, -52.0%; engineering, -39.7%; institutional, -34.7%; and industrial, -31.8%. Year to date (ytd) total nonresidential starts have also been led lower by all the major type-of-structure sub-categories, with industrial at -68.5%; commercial, -33.8%; engineering, -18.4%; and institutional, -16.4%. ‘Warehouse’ and ‘Military’ Starts Warrant Attention The ‘school/college’ sub-category (with a 59% share) is dominant within institutional work, while the ‘road/highway’ sub-category (with a 42% share) is ‘king’ in engineering. Within total nonresidential, those two sub-categories account for 17.3% and 16.7% respectively. Added together, with dollar values of $56.6 billion and $54.5 billion, they are one-third of total nonresidential. In October, the three metrics for edu- cational facility starts were -10.0% m/m, -27.2% y/y; and -14.4% ytd. For the ‘road/highway’ sub-category, the results were -5.6% y/y and -4.3% ytd, but +21.7% m/m. Looking at some other major sub-categories, October’s starts statis- tics for ‘water/sewage’ were -27.4% m/m and -6.1% y/y, but +4.0% ytd. Many of the Trend Graphs are Plunging Rather Steeply The graphs on page 7 showcase 12-month moving average ‘starts’ trend lines for a variety of type-of-structure sub-categories. Presently, it’s easy to summarize what is happening. All the curves, withthe single exception of ‘water/sewage’, are heading downwards. As for the severity of the descents, the ‘roads/highways’ curve is gently dipping but many of the others (e.g., ‘private office buildings’, ‘retail’ and ‘miscellaneous civil’) are plunging rather steeply. GRAPH 2: U.S. EMPLOYMENT – % CHANGE Y/Y BASED ON SEASONALLY ADJUSTED (SA) DATA  The latest data points are for October, 2020. Data source: Payroll Survey, Bureau of Labor Statistics (U.S. Department of Labor)/Chart: ConstructConnect. The latest data points are for October 2020. Data source: Payroll Survey, Bureau of Labor Statistics (U.S. Department of Labor). Per cent change, month vs same month, previous year GRAPH 3: U.S. CONSTRUCTION EMPLOYMENT (SA) &  Current through October, 2020. SA is seasonally adjusted / NSA is not seasonally adjusted. Data source: Bureau of Labor Statistics (BLS)/Chart: ConstructConnect. Both in terms of employment level and unemployment rate, construction’s recovery since March- April’s coronavirus-related crash has been proceeding better than in many other sectors. Current through October, 2020 SA is seasonally adjusted / NSA is not seasonally adjusted. Bureau of Labor Statistics (BLS) / Chart: ConstructConnect Construction Workers Fail to Catch Earnings Express Train Tables B-3 and B-8 of the monthly Employment Situation report record average hourly and average weekly wages for industry sec- tors. B-3 is for all employees (i.e., including bosses) on non-farm pay- rolls. B-8 is for ‘production and non-supervisory personnel’ only (i.e., it excludes bosses). For ‘all jobs’ and construction, there are eight rel- evant percentage changes to consider. From Table B-3 (including supervisory personnel), ‘all-jobs’ earn- ings y/y in October were +4.5% hourly and +5.7% weekly. Construc- tion workers realized earnings gains of +2.8% hourly and +1.5% weekly. From Table B-8 (excluding bosses), October’s ‘all jobs’ pay hikes were +4.5% hourly and +6.3% weekly. Again, workers in construction were left standing at the station when the express train pulled out. They received just +2.4% hourly and +1.1% weekly. Among PPI Construction Costing Series: 2 Sharp Climbs and 1 Descent August’s +1.3%); and ‘final demand construction’, +1.6% (slower than the previous month’s +1.8%). Material costs are heating up (e.g., soft- wood lumber’s PPI in September was +81.2% y/y), but with fewer proj- ects available for bidding, it would seem margins are being squeezed. The value of construction starts each month is derived from Con- structConnect’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 indi- vidual projects, some of which are super-large, has a history of being more volatile than many other leading indicators for the economy. ‘Grand Total’ Starts -19.7% Ytd From Table 8 on page 9 of this report, ConstructConnect’s total resi- dential starts in October 2020 were -5.8% m/m, -13.5% y/y and -5.0% ytd. The latest month’s multi-unit starts were -6.6% m/m, -60.6% y/y and -27.1% ytd. Single-family starts were -5.6% m/m, +17.4% y/y and +5.7% ytd. Note that ‘total’ residential’s figure of -5.0% ytd (all based in the ‘multi-family segment) barely registers as a decline next to the -18.4% result for engineering and the -33.0% negative turn for nonresi- dential buildings. ‘Grand Total’ construction starts in the tenth month of this year were -3.1% m/m, -30.5% y/y and -19.7% ytd. INSIGHT view of starts statisticsTABLE 5: VALUE OF UNITED STATES CONSTRUCTION STARTS ConstructConnect® INSIGHT VERSION — OCTOBER 2020 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 nonresidential building into ICI work (i.e., industrial, commercial and institutional), since each has its own set of economic and demographic drivers. Table 3 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’. “Top Ten” projects of the monthTABLE 6: ConstructConnect’s TOP 10 PROJECT STARTS IN OCTOBER 2020 Category: ConstructConnect |
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