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ABC Reports: Nonresidential Spending Thrives in Strong November Spending Report

Nonresidential construction surged in November, according to analysis of U.S. Census Bureau data released today by Associated Builders and Contractors (ABC). Nonresidential spending expanded to $712.4 billion on a seasonally adjusted, annualized rate in November, representing the highest level of spending in eight years.

October’s figure was upwardly revised by 1 percent (from $699.7 billion to $706.5 billion), while September’s figure was upwardly revised by 0.8 percent (from $701.7 billion to $707.2 billion).  A bit more than half of the 16 subsectors experienced spending increases in November.

“Today’s strong spending report contributed to a bright short-term outlook for the commercial and industrial construction sectors,” said ABC Chief Economist Anirban Basu. “Nonresidential construction spending is up approximately 5 percent on a year-over-year basis, and momentum should build further.

“With a new presidential administration coming to Washington there is a presumption that the economic dynamics of the near-term future will be markedly different than they have been,” said Basu. “If the last few weeks are any indication, the 2017 economy will be associated with tax cuts, more government spending, less financial regulation, faster economic growth, a stronger U.S. dollar, robust stock market performance and greater overall CEO confidence. That should translate into improved construction spending moving forward.

“It should be noted that data for November largely reflect the economic dynamics of the past,” said Basu. “Many construction firms have reported that they remain busy but have become concerned that work could dry up in certain markets in 2017 or 2018. This has been due to a combination of factors, including evidence of overbuilding in segments such as lodging and office buildings, even in Tier 1 markets like New York and Miami.

“Some are of course unnerved by prospects for shrinking exports given a stronger U.S. dollar, larger budget deficits and rising interest rates,” said Basu. “These are legitimate concerns and may ultimately serve to suppress U.S. economic dynamism. However, for now, the nonresidential construction outlook remains promising. The major source of uncertainty regarding the near-term outlook stems from whether the incoming administration will successfully pass an infrastructure package and how quickly such legislation would translate into stepped-up public construction spending.”

The Long Long Highway A Mill and Pave Project Rehabs a Section of an OK Road

Site-K Construction Zone Adds Nasdaq GlobeNews RSS Feed

Site-K Construction Zone Adds Nasdaq GlobeNews RSS Feed

Tom Ewing’s Environmental Update

* A settlement agreement with a California utility establishes revised costs and parameters for a vehicle charging system. Final cost: $160 million for 3-year program providing 7,500 L2 ports and 100 DCFC ports. L2 = Level 2 charging, providing a “top-off charge” in 2-3 hours, full charge in 4-6 hours. DCFC = Direct current fast charging, requiring 20-30 minutes, for a full charge. The utility originally wanted a larger 7-year program costing $654 million. A small annual ratepayer subsidy is required.

* DOT/FHWA left its “friends” at the nation’s Metropolitan Planning Organizations (MPOs) looking like Wile E. Coyote in the middle of the road after the steamroller went by. DOT finalized proposals, made last June, to shake-up the insular world of MPOs and their frequently entrapped local officials who snooze through meetings feigning interest in “travel demand models” and air quality conformity. DOT judged the MPO world as too inefficient, slow and not focused enough on America’s transportation needs. The agency recieved 660 comments, just 16 supported the Agency’s proposals! The final rule was announced Thursday. Look for it in the Federal Register soon.

* Fish & Wildlife (FWS) recently released two important notices for bald and golden eagles. Both pertain to inextricable eagle-wind energy conflicts. One notice was for the massive Chokecherry and Sierra Madre Phase I Wind Energy Project in Carbon County, WY, likely to include 500 wind turbines and require a huge construction footprint. The second notice was more general – the final revisions for Eagle “take permits,” a complicated policy allowing the “unavoidable take” (killing) of eagles but requiring, from the permit holder, mitigation and corrective activities as offsets. If only the eagles would read the Federal Register they would know humans want to get this right. FWS believes that bald eagle numbers can tolerate some level of “take.” Unfortunately, the situation is more dire for golden eagles.

 

Tom Ewing

p.s. The boss is giving me a short break! I’ll holler back atcha in January, 2017! Have a great holiday season. Thank you for letting me work with you this past year! I appreciate it! TE

ABC Predicts Modest Growth for 2017 Nonresidential Construction Sector; Warns of Vulnerability for Contractors

Associated Builders and Contractors (ABC) forecasts a slowdown of growth in the U.S. commercial and industrial construction industries in 2017. While contractors are vulnerable to rising commodity prices and potential interest rate increases in 2017, the middling consumer-led recovery should still lead to modest growth in construction spending and employment.

“The U.S. economy continues to expand amid a weak global economy and, despite risks to the construction industry, nonresidential spending should expand 3.5 percent in 2017,” said ABC Chief Economist Anirban Basu. “For more than two years, the Federal Reserve has been able to focus heavily on stimulating economic growth and moving the nation toward full employment. However, as commodity prices, including energy prices, firm up and labor costs march higher, the Federal Reserve will need to be more concerned about rising inflation expectations going forward. Associated increases in interest rates could have significantly negative impacts on certain asset prices, including stocks, bonds, commercial real estate and apartment buildings.

“Contractors also should be prepared for increases in commodity prices, which could translate into further stagnation in construction spending volumes if the purchasers of construction services are not prepared for related cost increases,” warned Basu. “Additionally, data from the U.S. Bureau of Labor Statistics indicate that construction job openings stand at a 10-year high and that average hourly earnings for construction workers rose above $28 per hour in 2016. The demand for construction workers is positioned to remain high and is likely to increase already significant wage pressures.

“However, there is a bullish scenario,” said Basu. “According to the Bureau of Economic Analysis, the average age of all fixed assets, including structures such as factories and hospitals, stands at 23 years—the oldest on record tracing back to 1925—and there is a collective awareness among American enterprises that they will need to replace much of their capital stock in future years. In addition, now rising energy prices could produce more investment and rising earnings—potentially translating into better support for asset prices, ongoing hiring and consumer spending.

“Despite some headwinds, many construction firms continue to report that they remain busy and ABC’s most recent Construction Confidence Index revealed that while construction firm leaders are not quite as confident as they were in prior quarters, most continue to expect growth in sales, margins and staffing levels,” concluded Basu.

Basu’s full forecast is available in the December issue of ABC’s Construction Executive magazine, along with the regional outlook for commercial and industrial construction by Dr. Bernard Markstein, president and chief economist of Markstein Advisors, who conducts state-level economic analysis for ABC.