Construction Spending, Labor & Materials Outlook October 15, 2014 Ken Simonson Chief Economist, AGC...

Construction Spending, Labor & Materials Outlook

October 15, 2014Ken Simonson

Chief Economist, AGC of [email protected]

2

2006 2008 2010 2012 2014-20%

-10%

0%

10%

Total (8/13-8/14: 3.9%)Residential (5.6%)

2006 2008 2010 2012 2014-30%-15%

0%15%30%

Total (8/13-8/14: 5%) Res (3%) Private Nonres (9%) Public (2%)

2006 2008 2010 2012 20140

1,5003,0004,5006,0007,500

Total employment, Jan. 2006-August 2014thousands, seasonally adjusted

Construction spending & employment, 2006-14

Source: BLS, Census Bureau construction spending reports

12-month % change, Jan. 2006-August 2014

2006 2008 2010 2012 2014$0

$250,000$500,000$750,000

$1,000,000$1,250,000

Total spending, Jan. 2006-August 2014billion $, seasonally adjusted annual rate (SAAR)

8/14: $961 bil.


8/14: 6,063,000

3

Construction is growing, but unevenly3 trends helping many sectors and regions:• ‘Shale gale’ • Panama Canal expansion• Residential revival, especially multifamily

3 trends holding down construction growth:• Government spends less on schools, infrastructure• Consumers switch from stores to online buying• Employers shrink office space per employee

Source: Author

One (or many) bright spot(s): the shale ‘gale’

4Source: U.S. Energy Information Administration

Haynesville

Eagle Ford

Bakken

Marcellus

Niobrara

Permian

5

Shale’s direct and indirect impacts on construction

• Onsite: Each well requires access road, site prep, pad, storage pond, support structures, pipes

• Nearby: Products, water require trucking, rail, pipeline, processing

• Local spending by drilling firms, workers, royalty holders• Upstream: orders for fracking sand, rigs, compressors,

pumps, pipe, tanks, trucks, railcars, processing facilities • Downstream: Petrochemical, power, steel plants; LNG

export terminals, fueling stations; LNG-powered vehicles• Losers: coal; maybe wind, solar, nuclear & suppliers

Source: Author

6

U.S. ports affected by Panama Canal expansion

Source: U.S. Army Corps of Engineers

Baltimore

NY-NJ

Norfolk

Seattle & Tacoma

Charleston San Diego

Oakland

Miami

Savannah Jacksonville

Mobile

Columbia River at Mouth, OR & WA

Los Angeles/ Long Beach

New OrleansHouston

7

Panama Canal expansion’s impacts on construction

• Ports: investing in dredging, piers, cranes, land access• Nearby: Storage, warehouse, trucking, rail facilities• Bridge, tunnel, highway improvements• Inland: possible changes in distribution, manufacturing

Source: Author

8

2011 2012 2013 2014-15%

0%

15%

30%

45%

60%

12 m

onth

% c

hang

e

2011 2012 2013 2014$0

$75,000

$150,000

$225,000

$300,000

$375,000

$450,000

Billi

on $

Private residential spending: MF still soaring, SF slowingPrivate residential spending, Jan. 2011-August 2014 (billion $, SAAR)

Multifamily (MF)

Single family (SF)

Improvements

Improvements: -10%

Single family: 8%

Multifamily: 36%

Total: 4%

Source: Census Bureau construction spending reports


9

Housing outlook• SF: rising for now but tight credit, fear of lock-in,

demographic shifts may limit increases• MF: Upturn should last into 2015– Vacancy rates near multi-year lows in most cities– Preference for urban living adds to demand– Condos have been slower to revive than rentals– Government-subsidized market likely to worsen

• Improvements: should generally track SF sales

Source: Author

10

8/14 Total 2013 vs. 2012 2014 Forecast

Nonresidential $604billion -1 % 4-8%Power (incl. oil & gas structures, pipelines) 102 -7 10+Highway and street 83 1 0 to -5Educational 79 -8 0 to -5Manufacturing 57 0 10+Commercial (retail, warehouse, farm) 55 8 0 to 5Office 44 0 0 to 5Transportation 40 5 2 to 5Health care 39 -2 0 to -5Sewage and waste disposal 24 -3Amusement & recreation 17 0Lodging 16 25 10+Other (Communication; water; public safety; conservation; religious): 8% of total -2

Nonres segments, 2013 & 2014 forecast (billion $, SAAR)

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

11

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013 2014$0

$30,000

$60,000

$90,000

Construction spending: public works (billion $, SAAR)


Highways (99.94% public)

Amusement & recreation (58% public)

Sewage/waste (99% public)

Water supply (95% public)

Latest 12-mo. change: -0.2% Latest 12-mo. change: 4%

Latest 12-mo. change: 2% Latest 12-mo. change: -2%

12

2008 2009 2010 2011 2012 2013 2014$0

$15,000

$30,000

$45,000

$60,000

2008 2009 2010 2011 2012 2013 2014$0

$30,000

$60,000

$90,000

$120,000

2008 2009 2010 2011 2012 2013 2014$0

$15,000

$30,000

$45,000

$60,000

2008 2009 2010 2011 2012 2013 2014$0

$15,000

$30,000

$45,000

$60,000

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


Power (88% private)

Transportation facilities (72% public)

Manufacturing (99% private)

Public & private transportation facilities

Latest 12-mo. change: 16% (private 17%; public 10%)

Latest 12-mo. change: 3%


Latest 12-mo. change: private 3%; public 3%

Public

Private

13

2008 2009 2010 2011 2012 2013 2014$0

$20,000$40,000$60,000$80,000

$100,000$120,000 Total education (79% public)

2008 2009 2010 2011 2012 2013 2014$0

$10,000$20,000$30,000$40,000$50,000

2008 2009 2010 2011 2012 2013 2014$0

$20,000$40,000$60,000$80,000

$100,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000$20,000$30,000$40,000$50,000

Construction spending: institutional (private + state/local)


Total healthcare (74% private)

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

Hospitals (private, state & local)


Latest 12-mo. change: -7% Latest 12-mo. change: private -5%; state & local -16%

S/L preK-12

Private

S/L higher ed

S/L

Private

Latest: state/local preK-12 -4%, higher 6%; private -1%

2008 2009 2010 2011 2012 2013 2014$0

$20,000

$40,000

$60,000

$80,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013 2014$0

$20,000

$40,000

$60,000

$80,000

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


Retail (private)

Warehouse (private)

Office (80% private)

Lodging (private)


Latest 12-mo. change: 48% Latest 12-mo. change: 10%

Latest 12-mo. change: 19% (private 19%; public 20%)

Private

Public

Total

-2%

4%

1%

6%

0%

-1%

2%

13%

-4%

4%

-0.5%

9%

-2%

2%

4%

3%

4%

3%

3%

-0.4%

7%

3%

6%

3%

6%

-0.4%

-7% 3%

-1%

1%

5%

3%

4%

4%

12%

7%

-5%

6%

11%

HI-0.3%

2%

VT5%

CT6%

RI4%

DE11%

NJ-8%

MD4%

DC-1%

NH0%

Over -10% -5.1% to -10% -0.1% to -5% 0.1% to 5%

MA0.2%

State construction employment change (U.S.: 3.9%) 8/13 to 8/14: 36 states up, 12 + DC down

5.1% to 10% Over 10%

Shading based on unrounded numbers

0%

Source: BLS state and regional employment report

7%

16

Construction employment, Aug. ‘14 vs. peak• US: construction -21% (-1.7 million) below Apr. ‘06 peak• States: La. and N.D. at new peak in 2014, 43 states > 10%

below• Metros: only 31 of 339 at new July peak, not seas. adjusted

F

Peak in 2014

Within 10% of peak

>10% below peak

Source: Author, from BLS national and state & area employment data (www.bls.gov/ces. www.bls.gov/sae)

http://www.bls.gov/ces

http://www.bls.gov/sae

Spending +21% but jobs only +10%. How do they do it?• Contractors charging more: PPI +11% (nonresidential buildings)• More hours per worker: aggregate hours +14% (+3% per employee)• Implication: further spending growth will trigger larger pickup in

hiring—but will workers be available?

Spending Total hours worked0%

5%

10%

15%

20%

25%

14%

% c

hang

e 8/

10-8

/14

9% real

Construction spending, labor & prices, 8/10-8/14

Spending Employment0%

5%

10%

15%

20%

25%21%

10%

% c

hang

e 8/

10-8

/14 21% total

11% price change

Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

19

September '10 September '140%

5%

10%

15%

20%

17.2%

7.0%9.2%

5.7%

Construction Total

Change in construction (un)employment, 9/10-9/14

• Construction unemployment fell sharply in past 4 years• But industry employment rose much less• Thus, workers left for other sectors, school, retiring

Source: Author, from BLS

Unemployment rates(Not seasonally adjusted, Sept. 2010-Sept. 2014)

0.00

250,000.00

500,000.00

750,000.00

1,000,000.00

860,000

576,000

Change in unemployment & employment(Not seasonally adjusted, Sept. 2010-Sept. 2014)

284,000Workers who

have left industry

20

Hardest positions to fill(% of respondents who are having trouble filling)

Source: AGC Member Survey, Jan. 2014

Craft

Equipment operators 48%Carpenters 44Laborers 37

Professional

Project managers/supervisors 48%Estimators 41

21

2011 2012 2013 2014100

102

104

106

108

110

112

Dec

embe

r 201

0 =

100

Material & labor costs vs. nonresidential building prices 12/10-8/14

Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI); Federal Highway Administration for NHCCI

ECI (empl. cost)6/13-6/14: 1.3%

PPI for nonres buildings8/13-8/14: 3.3%

PPI for materials8/13-8/14: 1.7%

12/10

22

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

Producer price indexes for key inputs, 12/10-8/14 (Dec. 2010=100)

Source: Author, based on BLS producer price index reports

Steel mill products

Gypsum products

Copper & brass mill shapes

Lumber & plywood

Latest 1-mo. change: 0.3%, 12-mo.: 4%

Latest 1-mo. change: -0.9%, 12-mo.: 8%

Latest 1-mo. change: -0.7%, 12-mo.: -1%


12/10

12/10 12/10

12/10

23

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

Producer price indexes for key inputs, 12/10-8/14 (Dec. 2010=100)

Source: Author, based on BLS producer price index reports

Plastic construction products

Concrete products

Asphalt paving mixtures & blocks

Latest 1-mo. change: -0.3%, 12-mo.: -4%




Diesel fuel

12/10

12/10 12/10

12/10

24

Best prospects for 2014-15• Multifamily• Manufacturing, esp. petrochemical, oil/gas supply• Oil & gas fields• Pipelines• Warehouses• Lodging (hotels & resorts)• Rail• Data centers

Source: Author

25

Trends: 2014-2017• Total construction spending: +6% to +10% per year– less SF housing, retail; declining public spending– new drivers: shale-based gas & oil; Panama Canal

widening; more elderly & kids, fewer young adults• Materials costs: +1 to +3% (similar to CPI); rare spikes• Labor costs: +2.5% to + 5%• Labor supply: widespread shortages possible due to

retirements, competition from other sectors, fewer vets

Source: Author

26

Summary for 2013, 2014-17

Source: 2012: Census, BLS; 2013-17: Author’s ests.

2013actual

2014forecast

2015-17ann. avg.forecast

Total spending 6% 6-9% 6-10%

Private – residential 20% 6-10% 1-10%

– nonresidential 1% 12-15% 1-10%

Public -3% -1 to +2% 0 or less

Materials PPI 1.3% 1-2% 1-3%; rare spikes

Employment cost index 2.0% 1.5-2.5% 2.5-5%

27

AGC economic resources (email [email protected])

• The Data DIGest: weekly 1-page email (subscribe at www.agc.org/datadigest)

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

• state and metro data, fact sheets• website: http://www.agc.org/Economics• webinars: Nov. 20 (email for details)

mailto:[email protected]

http://www.agc.org/datadigest

http://www.agc.org/Economics

Construction Spending, Labor & Materials Outlook October 15, 2014 Ken Simonson Chief Economist, AGC...

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