Tag Archive for 'Associated Builders and Contractors'

ABC Reports: Construction Input Prices Begin to Trend Higher

1291931467352794367Both nonresidential and overall construction input prices increased in September, with natural gas and crude petroleum prices bouncing back, according to analysis of the U.S. Bureau of Labor Statistics (BLS) Producer Price Index released today by Associated Builders and Contractors (ABC). The BLS data show that nonresidential input prices expanded 0.3 percent on a monthly basis in September, and overall construction prices also rose 0.3 percent on a monthly basis after declining 0.2 percent in August.

It is important to note that nonresidential input construction prices are now higher on a year-over-year basis for the first time since November 2014. Just four of the 11 key nonresidential construction input prices declined on a monthly basis, and only one—nonferrous wire and cable—experienced a year-over-year decline.

“The rise in material prices both on a monthly and year-over-year basis is not good news for U.S. nonresidential construction firms,” said ABC Chief Economist Anirban Basu. “For roughly two years, declining energy prices had wrung much of the inflation out of the economy, allowing interest rates to remain low and the Federal Reserve to remain fixated on guiding the nation toward full employment. Energy prices are no longer falling. Moreover, wage and healthcare inflation are building, which could drive interest rates higher next year. That scenario is not good for real estate valuations and nonresidential construction.

“Additionally, many contractors note that buyers of construction services continue to relentlessly pursue lower construction charges, even though many contractors are quite busy,” said Basu. “Labor and other costs are going up, and this has a tendency to squeeze margins. To the extent that materials prices begin to rise more forcefully, this could further compress nonresidential construction margins.

“The challenge for many contractors is to pass materials costs increases along to users of construction services in an effort to sustain margins,” said Basu. “Evidence suggests that this was not a major issue for construction firms prior to the Great Recession, but purchasers of construction services are now much less likely to accept significant cost inflation. The good news is that with the U.S. dollar strengthening recently, sharp month-over-month increases in many construction materials prices are unlikely in the near term.”

September Construction Input Prices

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ABC Reports: Nonresidential Spending Slips in August, Public Sector Spending Declines Faster than Private


Nonresidential construction spending fell for a second consecutive month in August, according to analysis of U.S. Census Bureau released today by Associated Builders and Contractors (ABC). Nonresidential spending totaled $686.6 billion on a seasonally adjusted, annualized basis for the month, 1.1 percent lower than July’s total of $694.1 billion (revised down from $701 billion) and 1.3 percent below August 2015’s figure.

Private nonresidential construction spending fell just 0.4 percent for the month, while its public sector counterpart shrank 2 percent. Four of the five largest nonresidential subsectors—power, highway and street, commercial and manufacturing—combined to fall 2.2 percent on a monthly basis.

“Stakeholders in the nation’s nonresidential construction industry have become accustomed to seeing weak spending data. However, today’s report represents a bit of a departure from previous reports,” said ABC Chief Economist Anirban Basu. “While previous weak spending reports can almost completely be explained by diminished public construction spending, today’s report also revealed emerging weakness in private spending.

“There are some noteworthy exceptions,” said Basu. “Office-related construction spending continued to surge higher, rising 2 percent for the month and up a whopping 24 percent on a year-over-year basis. Construction spending related to lodging rose 1.2 percent on a monthly basis and is nearly 16 percent higher than the year-ago level. Foreign investment in U.S. commercial real estate heavily influences these two segments, which has helped produce both higher asset prices and more construction.

“Given the passage of a federal highway bill last year, one might have expected spending growth in the highway/street and transportation categories,” said Basu. “Those expectations have been unmet thus far. Transportation-related construction spending dipped by more than 6 percent in August and by more than 11 percent on a year-over-year basis. Highway and street spending is down by more than 8 percent on a year-ago basis, and was down nearly 3 percent for the month.

“There are a number of theories at work, including the 2016 election cycle, which has led to some decision-makers putting projects on hold,” said Basu. “Government spending generally remains weak, and there are some indications that private lending standards are tightening due to a combination of growing concern among financial industry regulators and bankers that real estate bubbles are forming again in certain communities and segments.”


ABC Reports: Construction Employment Falters in August

ABC The U.S. construction industry lost 6,000 net jobs in August according to an analysis of U.S. Bureau of Labor Statistics (BLS) data released today by Associated Builders and Contractors (ABC). BLS also downwardly revised July’s estimate from 14,000 net new jobs to 11,000 net new jobs meaning that the construction industry has lost 25,000 net jobs since April after adding 68,000 through the first three months of 2016.

The nonresidential sector lost 10,700 net jobs in August after adding 9,600 jobs in July (revised down from 11,500). Employment in the heavy and civil engineering sector fell for the fourth time in five months, declining by 6,500 jobs on net, an indication of still weak infrastructure investment. The construction industry’s unemployment rate rose to 5.1 percent in August, but is still 3.4 percentage points lower than it was at the beginning of 2016.

“Today’s downbeat employment data came less than twenty-four hours after yesterday’s relatively upbeat nonresidential construction spending report,” said ABC Chief Economist Anirban Basu. “This pattern of good news followed by bad news is nothing new and continues to paint a confusing picture for nonresidential construction activity in the U.S.

“Most contractors continue to report decent backlog and although profitability remains a challenge, margins are thicker than they were several years ago,” said Basu. “Construction firms continue to complain about a lack of appropriately trained workers and construction wage costs are rising. These are all signs of an industry that remains busy.

“However, the data are also consistent with the notion that the pace of expansion in nonresidential construction activity has slowed,” warned Basu. “Nonresidential construction spending has expanded by less than 2 percent over the past year. The biggest culprit continues to be a lack of public sector capital spending on infrastructure, whether in the form of roads or water systems. Survey data regarding commercial real estate lending standards indicate that lending standards are beginning to tighten. While spending in office, lodging, and commercial categories has expanded significantly over the past year, the pace of growth is beginning to be constrained by a combination of regulatory pressures and growing concerns regarding overbuilding in certain key communities and product segments.

“The other consideration is that job growth remains rapid in a number of other key economic segments, including in e-commerce/distribution, retail, and a host of services,” said Basu. “This may be tempting some construction workers away from the industry, helping to explain continued low industry unemployment despite the job losses experienced in recent months.”

The national unemployment rate remained unchanged for a third consecutive month and stands at 4.9 percent. The labor force expanded by 176,000 persons in August and has grown by roughly one million persons over the past three months. Labor force participation stands at 62.8 percent.

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ABC Reports: Nonresidential Construction Growth on Pace with Strong July Jobs Report

1291931467352794367The U.S. construction industry has rebounded strongly, adding 14,000 net new jobs in July according to an analysis of Bureau of Labor Statistics data released today by Associated Builders and Contractors (ABC). This gain comes after the construction sector lost a combined 27,000 jobs from April to June. The construction industry’s unemployment rate inched lower in July, shedding a tenth of a percentage point to reach 4.5 percent, the industry’s lowest unemployment rate since October 2006.

The nonresidential sector accounted for a majority of July’s gains, adding 11,500 net new jobs. The residential sector remained stagnant for the month, adding only 700 net new positions. Heavy and civil engineering employment, which lost 8,800 jobs from January to June, experienced a modest rebound in July by adding 1,900 net new jobs.

“After several months of disappointing construction spending and employment data, today’s release was most welcome,” said ABC Chief Economist Anirban Basu. “If there is a slowdown in construction, it appears to be in residential as opposed to nonresidential activity. Today’s release provides evidence that the nonresidential construction recovery has not yet stalled.

“While hiring in July was strong both in the broader economy and in key nonresidential construction segments, ongoing job creation exacerbates the issue of rampant skilled labor shortage,” said Basu. “The construction employment rate is now down to 4.5 percent. The implication is that wage pressures continue to build. Therefore, contractors will likely need to more aggressively pass along cost increases to purchasers of construction services in order to simply maintain their current level of profitability.

“For now, America’s economic recovery remains in place,” said Basu. “Not only does the economy continue to add jobs, but labor force participation has begun to rise again. This should position America’s ongoing consumer-led expansion to continue, creating demand for commercial construction and other forms of construction in the process.”

The economy-wide unemployment rate remained unchanged at 4.9 percent. The nation’s labor force expanded by 407,000 persons for the month. This represents the largest growth for the month of July since the labor force expanded by 587,000 persons in July 1996.



Additional ABC Economic Analysis:

Construction Spending

Construction Employment


ABC Reports: Nonresidential Construction Spending Down Again in June, First Annual Decline Since 2013

1291931467352794367Nonresidential construction spending dipped 1 percent in June and has now contracted for three consecutive months according to analysis of U.S. Census Bureau data released today by Associated Builders and Contractors (ABC). Nonresidential spending, which totaled $682 billion on a seasonally adjusted, annualized rate, has fallen 1.1 percent on a year-over-year basis, marking the first time nonresidential spending has declined on an annual basis since July 2013.

“On a monthly basis, the numbers are not as bad as they seem, as May’s nonresidential construction spending estimate was revised higher. However, this fails to explain the first year-over-year decline in nearly three years,” said ABC Chief Economist Anirban Basu. “There are many forces at work, most of them negative, with the noteworthy exception of construction materials prices, which are down on a year-over-year basis. To the extent that savings are being passed along to purchasers of construction services, spending would appear lower in dollar terms than when measured in physical terms such as square footage.

“Thanks in part to the investment of foreign capital in America, spending related to office space and lodging are up by more than 16 percent year-over-year,” said Basu. The global economy is weak, and international investors are searching for yield and stability. U.S. commercial real estate has become a popular destination for foreign capital. However, the weakness of the global economy may also help explain the decline in manufacturing-related construction spending of nearly 5 percent for the month and more than 10 percent year-over-year.

“Though many contractors continue to report extensive backlog, the data suggest that average firm backlog may begin to retrench,” warned Basu. “The only significant driver of economic growth in America presently is consumer spending. Corporate profits remain stagnant and business investment remains underwhelming. Public sector spending does not appear positioned to accelerate anytime soon despite the passage of a federal highway bill last year.”

Precisely half of the 16 nonresidential subsectors expanded in June. Two of the largest subsectors—manufacturing and commercial—experienced significant contractions in June, however, and were responsible for a majority of the dip in spending.

Tepid spending by public agencies also continues to shape the data. Despite a monthly pick-up in spending, water-supply construction spending is down 14 percent on a year-over-year basis. Public safety construction spending is down 8.4 percent from a year ago, sewage and waste disposal by nearly 15 percent, highway and street by about 6 percent, education by 4 percent and transportation by more than 3 percent.

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