Construction Spending, Labor & Materials Outlook

NASFA WebinarJanuary 12, 2016Ken Simonson

Chief Economist, AGC of Americasimonsonk@agc.org

0

1,500

3,000

4,500

6,000

7,500

9,000

2006 2008 2010 2012 2014$0

$250

$500

$750

$1,000

$1,250

2006 2008 2010 2012 2014

Total spending, Feb. ‘06 (peak)‐Nov. ‘15billion $, seasonally adjusted annual rate (SAAR)

Construction spending & employment, 2006‐15Total employment, Apr. ’06 (peak)‐Dec. ‘15

thousands, seasonally adjusted

$1.21 trillion $1.12 trillion(7% below peak)

7.7 million

6.5 million

Private Residential

Total

Public

Private nonresidential

Nonres (10% below peak)

Residential (27% below peak)

Total (15% below peak)

November 2014‐November 2015: Total: 10%private res. 11%, private nonres. 14%, public 6%

December 2014‐December 2015: Total: 4.2%, residential 5.7%, nonresidential 3.2%

Source: U.S. Census Bureau (spending); Bureau of Labor Statistics (employment)

‐20%

0%

20%

40%

60%

2011 2012 2013 2014 2015

12 m

onth % change

$0

$100

$200

$300

$400

$500

2011 2012 2013 2014 2015 2016

Billion

 $ ($

 B)

seasonally adjusted annual rate (SAAR): Jan. ‘11 ($238 B)‐Nov. ’15 ($428 B)

Private residential spending: MF continues to outpace SF

Multifamily (MF)(Nov. ‘15: $57 B)

Single family (SF)(Nov. ‘15: $227 B)

Improvements(Nov. ‘15: $144 B)

Improvements: 8%Single family: 9%

Multifamily: 25%Total: 11%

Source: Census Bureau construction spending reports

12‐month % change: January 2011 (‐5.3%)‐November 2015 (10.8%) 

2016 residential spending forecast: 5‐9%• SF: 6‐9%; ongoing job gains add to demand; student debt, fears of lock‐in, limited supply will cap growth

• MF: 8‐12%; upturn should last through 2016– low vacancies, high rent growth encourage investors– millennials show continued preference for cities– nearly all MF construction is rental, not condo– public MF is growing but remains tiny (1% of total)

• Improvements: 0‐10%; newly corrected Census data shows loose relationship to SF spending

Source: Author

0.2%

1.5%

1.5%

0.9%

1.2%

0.9%

0.3%

1.9%

1.5%

1.9%

‐0.02%

2.3%

0.6%

0.7%

0.3%

0.8%

1.8%

0.6%

0.5%

0.3%

0.5%

0.2%

‐0.2%

0.1%

0.3% 

0.3%

‐0.04% 0.3%

0.1%

0.2%

0.1%

0.7%

1.0%

1.2%

1.8%

‐0.1%

‐0.3%

0.4%

1.7%

HI0.8%

1.4%

VT‐0.1%

CT‐0.1%

RI0.1%

DE1.1%

NJ0.2%

MD0.5%

DC1.9%

NH0.2%

decrease 0‐0.49% 0.5‐0.99% 1.0‐1.49%

MA0.6%

Population change by state, July 2014‐July 2015 (U.S.: 0.79%)

1.5%+

Source: U.S. Census Bureau, December 22, 2015

0.8%

AGC members’ expectations for 2016Net % who expect dollar volume of projects to be higher34% All projects 12% K‐12 school21% Retail/warehouse/lodging 12%  Public building19% Private office 8% Water/sewer19% Hospital 6% Highway14% Multifamily 3% Other transportation13% Higher education 1%

‐1%PowerDirect federal construction

Source: AGC Construction Outlook Survey, Jan. 2016 (1,580 total responses)

Jan.‐Nov. YTD 2015 vs. 2014

July‐Nov. 2015 annualized

2016 and 2017 (per year)

Nonresidential total (public+private) 9 %  ‐2 4‐8%Power (incl. oil & gas structures, pipelines)  ‐15 ‐16 0 to 10Educational 7 8 3 to 5Highway and street 7 ‐2 1 to 4Manufacturing 47 ‐10 ‐10 to +10Commercial (retail, warehouse, farm) 8 14 0 to 10Office 22 7 5 to 15Transportation 8 2 0 to 5Health care 5 1 3 to 8Sewage and waste disposal 9 ‐24Amusement & recreation 26 ‐20Lodging 31 8 ‐10 to +15Other (communication; water; public safety; conservation; religious): 8% of total 0 6

Nonresidential segments: year‐to‐date, 2016‐17 forecast

Source: Census Bureau construction spending report; Author’s forecast

$0$10$20$30$40$50

2008 2009 2010 2011 2012 2013 2014 2015

$0$20$40$60$80$100

2008 2009 2010 2011 2012 2013 2014 2015

Power (88% private)

$0$20$40$60$80$100

2008 2009 2010 2011 2012 2013 2014 2015

Manufacturing (99% private)

$0$10$20$30$40$50

2008 2009 2010 2011 2012 2013 2014 2015

Construction spending: industrial, heavy (billion $, SAAR)

Source: Census Bureau construction spending reports

Transportation facilities (70% public) Public & private transportation facilities

Latest 12‐mo. change: 3% Latest 12‐mo. change: private 7%; public 2%

Public

Private

Latest 12‐mo. change: 5% (oil & gas 29%; electric ‐4%)

Electric

Oil & Gas

Total

Latest 12‐mo. change: 29% (chemical 39%; other 19%) 

Other

Chemical

Total

Key points: power, mfg., transportation• Cutbacks in coal‐fired plants, oil & gas fields have hit bottom; surge in gas‐fired plants, pipelines into ‘18

• Mfg growth led by chemicals (petrochemical plants, ethane crackers, LNG) and transportation equipment (cars, light & heavy trucks, jets, railcars, barges); cuts in plants tied to farming, mining or exports

• Private (mainly rail) investment in transportation will slow; flat funding for public airports, ports, transit

Source: Author

$0

$30

$60

$90

2008 2009 2010 2011 2012 2013 2014 2015

$0

$10

$20

$30

2008 2009 2010 2011 2012 2013 2014 2015$0

$10

$20

$30

2008 2009 2010 2011 2012 2013 2014 2015

$0

$10

$20

$30

2008 2009 2010 2011 2012 2013 2014 2015

Construction spending: public works (billion $, SAAR)

Source: Census Bureau construction spending reports

Highways (99.6% public)

Amusement & recreation (48% public)

Sewage/waste (99% public)

Water supply (96% public)

Latest 12‐mo. change: 5% Latest 12‐mo. change: ‐2%

Latest 12‐mo. change: 16% Latest 12‐mo. change: ‐5%

Key points: roads, recreation, sewer/water• Only slight rise in federal highway funding even with long‐term bill; gradual pick‐up in state funding & P3s

• Amusement & recreation spending is very “lumpy”—a few big stadiums at irregular intervals; but funding for local, state, federal parks keeps eroding

• Eastern & Midwestern cities under orders to make long‐term upgrades to sewer systems that should boost spending; water utilities hurt by drought, conservation 

Source: Author

$0$20$40$60$80$100

2008 2009 2010 2011 2012 2013 2014 2015

$0$10$20$30$40$50

2008 2009 2010 2011 2012 2013 2014 2015

Total education (79% public)

$0$10$20$30$40$50

2008 2009 2010 2011 2012 2013 2014 2015

$0$20$40$60$80$100

2008 2009 2010 2011 2012 2013 2014 2015

Construction spending: institutional (private + state/local)

Source: Census Bureau construction spending reports

Total healthcare (77% private)

Education (state & local K‐12, higher; private)

Hospitals (private, state & local)

Latest 12‐mo. change: 14%

Latest 12‐mo. change: 5% Latest 12‐mo. change: private 18%; state & local ‐8%

S/L preKindergarten‐12th grade

Private

S/L higher ed

S/L

Private

Latest: state/local preK‐12 24%, higher 7%; private 9%

Key points: education & health care• Higher‐ed enrollment is shrinking, so colleges need fewer dorms & classrooms; apts. (MF) replacing dorms (ed.)

• PreK‐12 enrollment is flat; more children staying in cities and filling underused or charter schools, so construction no longer matches population growth

• Hospitals face more competition from standalone urgent care, outpatient surgery, clinics in stores; more investment in small facilities, short stays

Source: Author

$0

$20

$40

$60

$80

2008 2009 2010 2011 2012 2013 2014 2015

$0

$10

$20

$30

$40

2008 2009 2010 2011 2012 2013 2014 2015$0

$10

$20

$30

$40

2008 2009 2010 2011 2012 2013 2014 2015

$0

$20

$40

$60

$80

2008 2009 2010 2011 2012 2013 2014 2015

Construction spending: developer‐financed (billion $, SAAR)

Source: Census Bureau construction spending reports

Retail (private)

Warehouse (private)

Office (86% private)

Lodging (private)

Latest 12‐mo. change: ‐1%

Latest 12‐mo. change: 6% Latest 12‐mo. change: 28%

Latest 12‐mo. change: 21% (private 23%; public 7%)

Private

Public

Total

Key points: retail, warehouse, office, hotel• Retail now tied to mixed‐use buildings & renovations, not standalone stores or shopping centers; consumer pivot to online buying will continue

• Warehouse market largely built out for now but may heat up if Panama Canal changes distribution lanes

• Employment sets records each month but office space per employee keeps shrinking; growth mainly in cities & renovations, not suburban office parks

• Ongoing RevPAR gains still driving hotel growth but market is vulnerable to sudden reversals

Source: Author

Seattle

Major locations for data centers

Portland

SiliconValley

SouthernCalifornia

Las Vegas

Phoenix

Salt LakeCity

Denver

ColoradoSprings

Dallas

Houston

Kansas City

Omaha

Minneapolis

Des MoinesChicago

St. Louis

Atlanta

NorthernFlorida

NorthernVirginia

Boston

PhiladelphiaNorthernNew Jersey

Source: www.DataCenterKnowledge.com, from CBRE, ASHRAE

CT3%   

3%

6%

2%

6%

11%

3%

5%

12%

5%

8%

‐1%

‐4%

12%

0.4%

7%

6%

2%

2%

9%

5%

3%

1%

2%

7%

0.1% 

6%

3% 6%

1%

9%

‐1%

3%

3%

7%

‐0.4%

‐15%

12%

7%

HI12%

8%

VT1%

MD5%

DC1%

NH3%

Over ‐10% ‐5.1% to ‐10% ‐0.1% to ‐5% 0.1% to 5%

MA7%

State construction employment change (U.S.: 4.2%) 11/14 to 11/15: 44 states + DC up, 6 down

5.1% to 10% Over 10%

Shading based on  unrounded numbers

0%

Source: BLS state and regional employment report

0.2%NJ7%

DE5%

RI‐7%

3%

Metro construction employment change 11/14 to 11/15: 190 metros up, 64 unchanged, 104 down

Over ‐10%

‐5.1% to ‐10%

‐0.1% to ‐5%

0.1% to 5%

5.1% to 10%

Over 10%

0%

Hardest positions to fill

34%

43%

55%

52%

60%

63%

65%

73%

79%

0% 25% 50% 75% 100%

Engineers

Estimators

Project mgrs/supervisors

ALL Salaried professionals

Electricians

Concrete workers

Sheet metal installers

Carpenters

ALL Hourly craft professionals

% of respondents who are having trouble filling

Source: AGC Member Survey, Sept. 2015

4%

23%

23%

48%

16%

23%

29%

56%

0% 10% 20% 30% 40% 50% 60%

Paying more overtime

Increasing contributions/benefits

Providing incentives/bonuses

Raising base pay

Increasing compensation

Hourly

Salaried

How contractors are coping with worker shortages

0% 10% 20% 30% 40% 50% 60%

Building information modeling (BIM)  7%Unions  9%

Offsite prefabrication  9%Lean construction  13%

Labor‐saving equipment, tools, machinery  19%Staffing company  33%Subcontractors  43%

Increasing use of:

Source: AGC Member Survey, Sept. 2015

Unemployed construction workers, Dec. 2000‐Dec. 2015(not seasonally adjusted)

0

300,000

600,000

900,000

1,200,000

1,500,000

1,800,000

2,100,000

2000 2002 2004 2006 2008 2010 2012 2014

Source: BLS

75

100

125

150

2011 2012 2013 2014 2015

75

100

125

150

2011 2012 2013 2014 201575

100

125

150

2011 2012 2013 2014 2015

75

100

125

150

175

2011 2012 2013 2014 2015

Flat glass

Producer price indexes for key inputs, 1/11‐11/15 (Jan. 2011=100)

Source: Author, based on BLS producer price index  reports

Copper & brass mill shapes

Aluminum mill shapes

Latest 1‐mo. change: ‐1.7%, 12‐mo.: ‐1%

Latest 1‐mo. change: 0.0%, 12‐mo.: 6%

Latest 1‐mo. change: ‐3.0%, 12‐mo.: ‐16%

Latest 1‐mo. change: ‐1.4%, 12‐mo.: ‐13%

Gypsum products

75

100

125

150

2011 2012 2013 2014 2015

75

100

125

150

2011 2012 2013 2014 201575

100

125

150

2011 2012 2013 2014 2015

75

100

125

150

2011 2012 2013 2014 2015

Paving mixtures

Producer price indexes for key inputs, 1/11‐11/15 (Jan. 2011=100)

Source: Author, based on BLS producer price index  reports

Concrete products

Steel mill products

Latest 1‐mo. change: ‐3.5%, 12‐mo.: ‐38%

Latest 1‐mo. change: ‐0.2%, 12‐mo.: ‐6%

Latest 1‐mo. change: 0.5%, 12‐mo.: 3%

Latest 1‐mo. change: ‐3.3%, 12‐mo.: ‐18%

Diesel fuel

Summary for 2014, 2015‐17 forecast

Source: 2014: Census, BLS; 2015‐17: Author’s ests.

2014actual

2015 forecast

2016‐17annual average

forecastTotal spending 10% 10‐12% 6‐10%

Private – residential 14% 10‐12% 5‐10%

– nonresidential 11% 11‐13% 5‐10%

Public 2% 5‐7% 2‐5%

Materials PPI ‐0.9% ‐3 to ‐5% 0‐2%

Employment cost index 1.8% 2‐2.5% 3‐4.5%

AGC economic resources(email simonsonk@agc.org) 

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• monthly press releases: spending; PPI; national, state, metro employment

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Vol. 16, No. 1 · Dec. 24, 2015-Jan. 6, 2016

Contractors show optimism about most segments in AGC poll; November spending dips

Contractors are optimistic, on balance, about the outlook for nonresidential and multifamily construction, based on the

1,580 responses to a survey that AGC released today. About 44% expect the available dollar volume of projects they compete

for in 2016 to be higher than in 2015, while 9% expect the volume to be lower, for a net positive reading of 34%. Among 13

market segments, the net was highest for retail, warehouse and lodging construction, 21%; followed by hospital and private

office, 19% each; multifamily, 14%; higher education, 13%; K-12 school and public building, 12% each. There was less

optimism about water/sewer, 8%; manufacturing, 7%; highway, 6%; other transportation, 3%; and power, 1%. Respondents

registered a 1% net negative reading regarding the outlook for federal construction. However, the survey was completed before

the recent enactment of federal tax bills with favorable terms for direct federal projects, highway and transit funds, and tax-

subsidized wind and solar power construction. Only 6% of respondents expect their firms to reduce headcount in 2016 vs. 71%

who expect an increase. About 70% say they are having a hard time filling key salaried or hourly craft positions and 69% say

it will be as hard or harder to do so in 2016. These results were broadly similar to those of AGC’s September 2015 workforce

survey and January 2015 outlook survey. Of 14 issues listed as answers to a question regarding “the biggest concerns to you

and your business,” 52% picked worker shortages; 45% chose worker quality; 40%, rising direct labor costs; 43%, increased

competition for projects; and 39%, growth in federal regulations. The 2016 survey was sponsored by software firm Sage and

included several questions about contractors’ use of information technology among other topics.

Construction spending in November totaled $1.122 trillion at a seasonally adjusted annual rate, 0.4% below the

upwardly revised October rate but 10% higher than a year before, the Census Bureau reported on Monday. Census said figures

“for January 2005 through October 2015 have been revised to correct a processing error in the tabulation of data on private

residential improvement spending,” which led to identical revisions in all totals that include it. The correction added more than

$30 billion to the seasonally adjusted annual rate totals for each month from May 2014 through September 2015. Spending

patterns diverged widely by segment and time period. Private residential spending increased for the eighth-straight month, by

0.3%, and 11% year-over-year (y/y). In contrast, private nonresidential spending slipped 0.7% for the month to a level lower

than in May, although it was still up 14% y/y. Public construction declined for the third month in a row, by 1.0%, but was up

6.0% y/y. New multifamily construction dropped 0.7% for the month but rose 25% y/y; new single-family construction gained

0.6% and 9.3%, respectively; and residential improvements rose 0.1% and 8.3%. Among private nonresidential segments, in

descending order of November size, manufacturing construction slumped 4.0% for the month to a seven-month low but was up

29% y/y; power fell 0.9% to an eight-month low but was up 5.6% y/y (comprising a 29% y/y jump in oil and gas pipelines and

field structures offsetting a 4.7% drop in electric power facilities); commercial (retail, warehouse and farm) slid 0.9% for the

month and 0.4% y/y; and office increased for the 9th consecutive month, by 1.7% and 23% y/y, to its highest level in seven years.

Of the two largest public segments, highway and street construction fell 1.3% for the month but was up 5.6% y/y, while

educational reached a four-year high, rising 5.0% from October and 15% y/y.

“Employers added 15.3 million square feet of office space in the fourth quarter, more than in any other quarter since the

third quarter of 2007, according to real-estate research service Reis Inc.,” the Wall Street Journal reported on Tuesday. Among

79 markets tracked by Reis, rents during 2015 rose most steeply in Seattle, 8.1%; San Francisco, 6.1%; and the San Jose area

(including Silicon Valley), 6.0%. “On the other end of the spectrum…low oil prices are taking a toll on the Houston market.

Companies there have dumped millions of square feet onto the sublease market while a rash of new construction is adding

supply. Houston’s vacancy rate rose to 15.6% from 14.5% a year earlier, according to Reis.”

United Van Lines reported on Friday, “For the third consecutive year, Oregon holds on to the No. 1 spot as ‘Top Moving

Destination,’ as Americans continue to pack up and head west and south. Those are the results of [the firm’s] 39th Annual

National Movers Study, which tracks customers’ state-to-state migration patterns over the past year.” State population

estimates issued by Census on December 22 “show a noticeable expansion of Sun Belt migration gains observed in the previous

year,” according to a Brookings Institution article posted on Tuesday. “The Sun Belt states gained well over half million migrants

in 2014-2015, coming close to matching the 600,000 Snow Belt to Sun Belt migration peak in 2004-2005. [Florida] gained

202,000 net migrants last year alone—leading all states in domestic migration gains for the first time since the years 2000 to

2005….Texas, Colorado, Arizona, South Carolina, North Carolina, Oregon and Georgia [each] received more migrants last year

than the year before….Among the eight largest out-migrant states, New York, Illinois, California, New Jersey, Pennsylvania,

Michigan, Ohio, and Connecticut all except [New York] showed greater migration losses last year than the year

before….International migration has picked up substantially in the last two years. The net gain of 1.15 million in 2014-2015

is the largest since 2001. Sixty percent of these immigrants accrue to Sun Belt states with California, Texas, and Florida

accounting for more than half.” Unlike immigration and natural increase (births less deaths), migration may offset increased

demand for construction and workers in some states with equal decreases elsewhere.

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at http://store.agc.org.