November Nonresidential Construction Starts Recorded Some Welcome Upticks

Article source: ConstructConnect

Some Significant Month-to-Month Starts Gains

ConstructConnect announced today that the latest month’s volume of construction starts, excluding residential work, was $28.9 billion, a gain of +4.3% versus October’s $27.8 billion (originally reported as $25.9 billion).

Usually, there’s a slight decline in the volume of starts from October to November due to seasonality, i.e., the weather turning colder. (As a ‘heads up,’ seasonality becomes even more pronounced in December through February.)

View this information as an infographic.
Click here to download the complete Construction Industry Snapshot Package – November 2020 PDF.

As for the volume of total nonresidential starts in November of this year versus the same month last year, it was -28.7%. A similar decline has also been seen on a year-to-date basis, -26.6% compared with all but the last month of 2019.

Nevertheless, it’s encouraging that the two major subcategories of nonresidential work—i.e., nonresidential building activity and heavy engineering/civil undertakings—both recorded month-to-month gains in November, +3.8% and +4.9% respectively. Finally, justifications for some optimism concerning the economic and construction outlooks are emerging.

More Optimism Creeps Into Outlook

There are three primary reasons to believe a corner may have been turned, warranting a brightening of the mood concerning 2021’s prospects relative to a dismal 2020.

(1) The number one positive leading indicator for improving economic spirits will be when the number of coronavirus infections in the country begins to recede once again. Thankfully, effective vaccines are riding to the rescue. They’re being rolled out just as 2020 ends and will provide blanket protection by Spring-Summer of next year. The economy can’t stretch into a canter when it is continually under threat of closures due to COVID-19 outbreaks.

(2) Tremendous pent-up demand has been accumulating in several corners of the economy. A great many activities in health care have been put on hold while pandemic patients have received priority treatment. A catch-up phase for elective surgeries and myriad other medical procedures is drawing nearer.

Most people can’t wait to mix and mingle again; to attend theater and concert events; to dine out with family and friends; to cruise a shopping mall with a carefree step; and to take a trip somewhere (almost anywhere, if it gets them out of the house.) Moreover, over the past nine months, they’ve put aside the money to do so. The national savings rate has doubled while so many individuals have experienced drastic diminishments of their social lives. That money is just waiting to be unleashed.

(3) Some commodities are seeing price advances. Since commodities in metals and energy form the basis of all building products, there will be a tendency to lift construction costs. At the same time, though, commodity price advances are an incentive for owners of prime-source resource projects to initiate new capital spending.

The price of oil moving up to $45 USD per barrel will be good for many parts of America. (Texas, Oklahoma, North Dakota, Colorado, to name some states).

Graph 1: Daily Spot Price of West Texas Intermediate (WTI) Oil, Cushing, Oklahoma

Building Material Sales Exceptional

In November, total employment in the U.S. construction sector rose by +27,000 jobs. The jobs ‘claw-back’ ratio for construction now sits at 71.4%, better than the 52.1% (or only a bit more than half) for all jobs in the economy. (The ‘claw-back’ ratio is jobs ‘re-creation’ over the last eight months as a percentage of the big jobs-count drop from February to April.)

On a year-over-year basis, U.S. construction employment is presently -2.4%, considerably better than the -6.1% figure for all jobs in the economy. The sector’s not seasonally adjusted (NSA) unemployment rate is 7.3%. In November of last year, it had been 4.4%. The current national all-positions NSA unemployment rate is 6.4%.

A closely aligned adjunct to on-site construction work is retail sales managed by building material suppliers. To the delightful surprise of firms in that sector, at no time this year, not even during the darkest days in the Spring, did they experience year-over-year declines in sales. They have received support from ‘stay-at-home’ DIY projects, restaurant patio additions, single-family homebuilding strength, and a spike in lumber prices that may or may not stick around.

Graph 2: Sales by U.S. Building Material & Supplies Dealers

‘Mega’ Logistics and Warehouse Projects

The +4.3% month-over-month (m/m) performance of total nonresidential starts in November was thanks to noteworthy buoyancy in commercial work (+35.4%), with help also coming from institutional (+5.1%) and engineering (+4.9%). Only industrial (-86.6%) was ‘frowning.’

The -28.7% for total nonresidential starts in November of this year compared with November of last year (y/y) resulted from declines across the board: industrial, -89.5%; commercial, -43.9%; institutional, -14.4%; and engineering, -5.3%.

Widespread pullbacks have also been evident among the major subcategories in year-to-date (ytd) starts. The total nonresidential ytd volume drop of -26.6% has been a joint effort (or more accurately, lack thereof) of industrial (-68.3%), commercial (-33.5%), engineering (-17.1%) and institutional (-14.1%).

One of the few type-of-structure categories to pull off a year-to-date increase in volume of starts this year has been ‘warehouses’ (+6.6%) and that leads into an interesting discussion about alternatively defined ‘mega’ projects.

A project is ‘mega’-sized when it’s valued at a billion dollars or more. According to that yardstick, the year 2019 had a catalogue of mega projects like no other, and it certainly hasn’t been matched in 2020. But if a ‘mega’ is re-defined to be a project of a million square feet or more, then 2020—thanks to a wealth of warehouse and logistics fulfillment and distribution centers—has good reason to stick out its chest with pride.

Through November 2019, there were 23 project starts of a million square feet or more, adding to 56 million square feet. Through November of 2020, there have been 24 such projects (including the latest one among the Top 10 on page 6 of this report), summing to 50 million square feet.

FAAMG high-tech companies, with formidable reserves of cash, have been responsible for much of this work proceeding (e.g., warehouses and data centers), although there have been some other big players in this field of light industrial and commercial construction besides Facebook, Amazon, Apple, Microsoft, and Alphabet/Google.

Revealing Results for 10 Substructure Types

Table 1 shows year-to-date starts for ten structure types buried within the line items of Table 5 below.

With travel and live entertainment greatly curtailed, it’s no shock that transportation terminal (-77.5% ytd) and sports stadium (-55.7%) start-ups have been on the outs this year. (Although it bears noting that there are several soccer stadiums in various stages of development across the country.) ‘Public defense’ construction, though, has been relatively upbeat: courthouses, +37.9%; prisons, +23.1%; and police stations and fire stations about even, at +1.5%.

K-12 school starts and college/university starts are down ytd to about the same degree, a little more than -12% each. Finally, electric power project groundbreakings are -75.6% ytd.

Table 1: Construction Starts in Some Additional Type of Structure Sub-Categories

Data Source and Table: ConstructConnect.

States With Starts Increases Are a Rare Breed

Table 2 sets out the Top 20 states by year-to-date dollar volumes of nonresidential building (NRB) starts; Table 3, the Top 20 for heavy engineering/civil starts.

Among the Top 20 states for NRB dollar volume starts, only two have managed increases to date in 2020: Missouri (+18.3%; Geospatial Intelligence Agency headquarters) and Maryland (+7.8%). Remember that total U.S. NRB starts are -31.7% ytd.

Since the shrinkage in countrywide engineering starts (-17.1%) has not been as severe as for NRB starts, there are more states (six versus two) among the Top 20 that have achieved increases ytd: Utah (+32.5%); Louisiana (+30.1%); Indiana (+21.7%); California (+20.2%; people mover at LAX); Washington (+16.9%); and Georgia (+9.6%). New Jersey (+0.3%) has held steady.

Table 2: Ranking of Top 20 States by YTD $ Volume of Nonresidential Building Construction Starts – ConstructConnect

Data Source and Table: ConstructConnect.

Table 3: Ranking of Top 20 States by YTD $ Volume of Heavy/Engineering Civil Construction Starts – ConstructConnect

Data Source and Table: ConstructConnect.

Table 4: Monitoring the U.S. employment recovery ‒ November 2020

Among Sliding Trend Graphs, Roads & Waterworks the Holdouts

Highway work in Dallas, Texas, (see Top 10 Project Starts in the U.S. – November 2020) has put a halt to the slide in the ‘heavy engineering’ and ‘roads/highway’ curves among the twelve-month moving average trend graphs (see Nonresidential Construction Starts Trend Graphs – November 2020). Also, the ‘water/sewer’ curve has been staying level. All the other slopes are descending unambiguously.

Construction Workers Draw the Short Straw in Wage Gains

Tables B-3 and B-8 of the monthly Employment Situation report record average hourly and average weekly wages for industry sectors. B-3 is for all employees (i.e., including bosses) on nonfarm payrolls. B-8 is for ‘production and nonsupervisory personnel’ only (i.e., it excludes bosses). For ‘all jobs’ and construction, there are eight relevant percentage changes to consider.

From Table B-3 (including supervisory personnel), ‘all-jobs’ earnings y/y in November were frothy at +4.4% hourly and +5.9% weekly. The comparable gains for construction workers, though, were restrained at +2.7% hourly and +2.2% weekly. From Table B-8 (excluding bosses), November’s ‘all jobs’ pay bounces were +4.5% hourly and +6.6% weekly. Again, construction employees drew the short straw, receiving just +2.9% hourly and +1.8% weekly,

Material Costs & Bid Prices Sailing in Opposite Directions

October 2020’s y/y results for three BLS Producer Price Index (PPI) series were as follows: ‘construction materials special index,’ +5.4% (up from September’s +5.0%); ‘inputs to new construction index, excluding capital investment, labor, and imports,’ +5.5% (higher than September’s +3.7%); and ‘final demand construction,’ +1.2% (an easing from the previous month’s +1.6%). Material costs may be climbing, but aggressive bidding to secure work from a shallower pool of structures out to tender is lowering margins.

The value of construction starts each month is derived 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 super-large, has a history of being more volatile than many other leading indicators for the economy.

‘Grand Total’ Starts -18.0% Ytd

From Table 7 below, ConstructConnect’s total residential starts in November 2020 were -18.3% m/m, -4.8% y/y, and -2.5% ytd. The latest month’s multi-unit starts were -23.1% m/m, -53.9% y/y, and -26.9% ytd. Single-family starts were -17.1% m/m, +25.2% y/y, and +9.5% ytd. Clearly, the single-family home building market has stepped to the forefront among recovering type-of-structure construction categories. ‘Grand Total’ construction starts in the second-last month of this year were -7.2% m/m, -19.7% y/y, and -18.0% ytd.

ConstructConnect adopts a research-assigned ‘start’ 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.

Click here to download the Construction Industry Snapshot Package – November 2020 PDF.

Click here for the Top 10 Project Starts in the U.S. – November 2020.

Click here for the Nonresidential Construction Starts Trend Graphs – November 2020.

TABLE 5: VALUE OF UNITED STATES NONRESIDENTIAL CONSTRUCTION STARTS
NOVEMBER 2020 – CONSTRUCTCONNECT

*Includes transportation terminals and sports arenas.

Source: ConstructConnect Research Group and ConstructConnect.
Table: ConstructConnect.

TABLE 6: VALUE OF UNITED STATES CONSTRUCTION STARTS
CONSTRUCTCONNECT INSIGHT VERSION – NOVEMBER 2020
Arranged to match the alphabetical category drop-down menus in INSIGHT

Table 5 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 6 presents an alternative, perhaps more user-friendly and intuitive type-of-structure ordering that matches how the data appears in ConstructConnect Insight.

Source: ConstructConnect.
Table: ConstructConnect.

TABLE 7: VALUE OF UNITED STATES NATIONAL CONSTRUCTION STARTS – NOVEMBER 2020 – CONSTRUCTCONNECT
Billions of current $s, not seasonally adjusted (NSA)

Data Source and Table: ConstructConnect.

TABLE 8: U.S. YEAR-TO-DATE REGIONAL STARTS,
NONRESIDENTIAL CONSTRUCTION* — CONSTRUCTCONNECT

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

Category: ConstructConnect

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