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Construction Spending, Labor & Materials Outlook

Construction Spending, Labor & Materials Outlook. Surety Assn. of Ohio/Ohio Contractors Assn. Columbus, September 10 , 2014 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org. Construction spending & employment, 2006-14. 7/14: $981 bil. 7/14: 6,041,000.

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Construction Spending, Labor & Materials Outlook

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  1. Construction Spending, Labor & Materials Outlook Surety Assn. of Ohio/Ohio Contractors Assn. Columbus, September 10, 2014 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

  2. Construction spending & employment, 2006-14 7/14: $981 bil. 7/14: 6,041,000 12-month % change, Jan. 2006-July 2014 12-month % change, Jan. 2006-July 2014 Source: Census Bureau construction spending reports 2

  3. Construction is growing, but unevenly 3 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

  4. One (or many) bright spot(s): the shale ‘gale’ Bakken Marcellus Niobrara Haynesville Permian Eagle Ford • Source: U.S. Energy Information Administration

  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 Seattle & Tacoma Columbia River at Mouth, OR & WA NY-NJ Baltimore Oakland Norfolk Los Angeles/ Long Beach San Diego Charleston Savannah Jacksonville Mobile New Orleans Houston Miami • Source: U.S. Army Corps of Engineers

  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. Private residential spending: MF still soaring, SF slowing Private residential spending, Jan. 2011-July 2014 (billion $, SAAR) Multifamily (MF) Single family (SF) Improvements 12-month % change, Jan. 2011-July 2014 Multifamily: 41% Single family: 9% Total: 8% Improvements: -2% 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. Nonres segments, 2013 & 2014 forecast (billion $, SAAR) • Source: Census Bureau construction spending report; Author’sforecast

  11. Construction spending: public works (billion $, SAAR) Highways (99.96% public) Sewage/waste (99% public) Latest 12-mo. change: 3% Latest 12-mo. change: 3% Amusement & recreation (56% public) Water supply (96% public) Latest 12-mo. change: -3% Latest 12-mo. change: 12% Source: Census Bureau construction spending reports

  12. Construction spending: industrial, heavy (billion $, SAAR) Power (88% private) Manufacturing (99% private) Latest 12-mo. change: 24% Latest 12-mo. change: 26% (private 29%; public 4%) Transportation facilities (72% public) Public & private transportation facilities Public Private Latest 12-mo. change: 2% Latest 12-mo. change: private 1%; public 3% Source: Census Bureau construction spending reports

  13. Construction spending: institutional (private + state/local) Total education (80% public) Education (state & local K-12, higher; private) S/L preK-12 S/L higher ed Private Latest: state/local preK-12 -8%, higher 2%; private -8% Latest 12-mo. change: -1% Total healthcare (74% private) Hospitals (private, state & local) Private S/L Latest 12-mo. change: private -3%; state & local -11% Latest 12-mo. change: -6% Source: Census Bureau construction spending reports

  14. Construction spending: developer-financed (billion $, SAAR) Retail (private) Office (81% private) Total Private Public Latest 12-mo. change: 20% (private 23%; public 8%) Latest 12-mo. change: -1% Warehouse (private) Lodging (private) Latest 12-mo. change: 16% Latest 12-mo. change: 55% Source: Census Bureau construction spending reports

  15. State construction employment change (U.S.: 3.6%) 7/13 to 7/14: 39 states up, 11 + DC down Over -10% -5.1% to -10% -0.1% to -5% 0% 0.1% to 5% 5.1% to 10% Over 10% 6% 3% -1% 4% NH-3% 7% 8% 1% 3% 3% 1% VT 6% 2% 4% 4% 13% 6% 7% MA2% 11% 2% 1% 4% 5% 6% -6% 0.4% 3% CT5% RI4% 5% -1% -3% 5% DE13% NJ-6% -5% 6% 2% 4% 6% 2% 3% 2% -6% MD 5% DC-1% 6% Shading based on unrounded numbers 11% -3% HI-1% • Source: BLS state and regional employment report

  16. Construction Employment in United States, 1/90-7/14 (seasonally adjusted; shading = recessions) Peak: Apr. ‘06 -22% vs. peak Construction Employment in Ohio, 1/90-7/14 (seasonally adjusted; shading = recessions) Peak: Mar. ‘00 -26% vs. peak • Source: BLS

  17. Construction Employment Change from Year Ago1/08-7/14 (seasonally adjusted) U.S. 3.7% Ohio 1.2% 37 out of 51 • Source: BLS

  18. Change in construction employment, 7/13-7/14 (NSA) • Source: AGC rankings, calculated from BLS state and area employment reports

  19. Construction employment change by OH metro, 7/13-7/14 Over 10% 5.1% to 10% 0.1% to 5% 0% -0.1% to -5% -5.1% to -10% Over -10% Shading based on unrounded numbers • Source: BLS state and regional employment report

  20. Construction employment, July ‘14 vs. peak • US: construction -22% (-1.7 million) below Apr. ‘06 peak • States: La., N.D. and Okla. at new peak in 2014, 43 states > 10% below • Metros: only 29 of 339 at new July peak, not seas. adjusted Peak in 2014 Within 10% of peak F >10% below peak • Source: Author, from BLS national and state & area employment data (www.bls.gov/ces. www.bls.gov/sae)

  21. State construction employment: June 2014 vs. trough (since Jan. 2008) 0% to 4.9% 5% to 9.9% 10% or better % change from trough IN AK KY * AK, KY, NM, AL are currently at their low. Trough date 21 • Source: Author, based on BLS

  22. State construction employment, June 2014 vs. peak -10% or worse -5.0% to -9.9% -0.5% to -4.9% 0% to 4.9% 5% or better % change from peak Peak Date Source: AGC, based on Bureau of Labor Statistics state and regional reports

  23. Construction spending, labor & prices, 7/10-7/14 Spending +24% but jobs only +10%. How do they do it? • Contractors charging more: PPI +11% (nonresidential buildings) • More hours per worker: aggregate hours +14% (+4% per employee) • Implication: further spending growth will trigger larger pickup in hiring—but will workers be available? 24% total 11% price change 12% real • Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

  24. Change in construction (un)employment, 8/10-8/14 • Construction unemployment fell sharply in past 4 years • But industry employment rose much less • Thus, workers left for other sectors, school, retiring Unemployment rates(Not seasonally adjusted, August 2010-August 2014) Change in unemployment & employment (Not seasonally adjusted, August 2010-August 2014) 262,000 Workers who have left industry • Source: Author, from BLS

  25. Hardest positions to fill(% of respondents who are having trouble filling) • Source: AGC Member Survey, Jan. 2014

  26. Material & labor costs vs. nonresidential building prices 12/10-7/14 PPI for nonres buildings 7/13-7/14: 3.2% PPI for materials 7/13-7/14: 2.0% ECI (empl. cost) 6/13-6/14: 1.3% 12/10 • Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI); Federal Highway Administration for NHCCI

  27. Producer price indexes for key inputs, 12/10-7/14 (Dec. 2010=100) Steel mill products Copper & brass mill shapes 12/10 12/10 Latest 1-mo. change: 3.3%, 12-mo.: 3% Latest 1-mo. change: 0.1%, 12-mo.: 4% Gypsum products Lumber & plywood 12/10 12/10 Latest 1-mo. change: 0.2%, 12-mo.: 12% Latest 1-mo. change: -0.3%, 12-mo.: 9% Source: Author, based on BLS producer price index reports

  28. Producer price indexes for key inputs, 12/10-7/14 (Dec. 2010=100) Diesel fuel Concrete products 12/10 12/10 Latest 1-mo. change: 0.5%, 12-mo.: 4% Latest 1-mo. change: -0.3%, 12-mo.: -1% Plastic construction products Asphalt paving mixtures & blocks 12/10 12/10 Latest 1-mo. change: 0.0%, 12-mo.: 2% Latest 1-mo. change: 0.0%, 12-mo.: 2% Source: Author, based on BLS producer price index reports

  29. 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

  30. 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

  31. Summary for 2013, 2014-17 Source: 2012: Census, BLS; 2013-17: Author’s ests.

  32. AGC economic resources(email simonsonk@agc.org) • 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)

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