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Construction Spending, Labor & Materials Outlook

Construction Spending, Labor & Materials Outlook. Austin Chapter-AGC March 17, 2014 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org. 2014 AGC Construction Outlook Survey Results.

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Construction Spending, Labor & Materials Outlook

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  1. Construction Spending, Labor & Materials Outlook Austin Chapter-AGC March 17, 2014 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

  2. 2014 AGC Construction Outlook Survey Results Compared to 2013, do you expect the available dollar volume of project you compete for in 2014 to be: • Source: AGC Outlook Survey, January 2014

  3. Construction spending (seasonally adjusted annual rate—SAAR) Total construction, Jan. 2006-Jan. 2014 (billion $, SAAR) $943 billion 12-month % change, Jan. 2006-Jan. 2014 Private Residential: 15% Private Nonresidential: 10% Total: 9% Public: 2.5% Source: Census Bureau construction spending reports

  4. Construction is growing, but unevenly 3 trends helping many sectors and regions: • ‘Shale gale’ • Panama Canal expansion • Residential revival 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

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

  6. 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

  7. 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

  8. 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

  9. Private residential spending is still rising—for now Private residential spending, Jan. 2011-January 2014(billion $, SAAR) Multi-family Single family Improvements 12-month % change, Jan. 2011-January 2014 Multi-family: 28% Single family: 21% Total: 15% Improvements: 4% Source: Census Bureau construction spending reports

  10. 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, add to demand • Condos have been slower to revive than rentals • Government-subsidized market likely to worsen • Improvements: should benefit from rising SF sales Source: Author

  11. Nonres segments, 2013 & 2014 forecast (billion $, SAAR) • Source: Census Bureau construction spending report; Author’sforecast

  12. Construction spending: developer-financed (billion $, SAAR) Retail (private) Office (82% private) Total Private Public Latest 12-mo. change: 11% (private 17%; public -10%) Latest 12-mo. change: 14% Warehouse (private) Lodging (private) Latest 12-mo. change: 48% Latest 12-mo. change: 33% Source: Census Bureau construction spending reports

  13. Construction spending: industrial, heavy (billion $, SAAR) Power (85% private) Manufacturing (99% private) Latest 12-mo. change: -7% Latest 12-mo. change: 2% (private 1%; public 9%) Transportation facilities (72% public) Public & private transportation facilities Public Private Latest 12-mo. change: 8% Latest 12-mo. change: (private 8%; public 8%) Source: Census Bureau construction spending reports

  14. Construction spending: institutional (private + state/local) Total education (79% public) Institutional S/L PreK-12 S/L higher ed Private Latest 12-mo. Change: (Private 2%; State/Local higher -7%; State/Local PreK-12 -2%) Latest 12-mo. change: -2% Healthcare (75% private) Hospitals (private, state & local) Private S/L Latest 12-mo. change: (private -6%; public -5%) Latest 12-mo. change: -4% Source: Census Bureau construction spending reports

  15. Construction spending: public works (billion $, SAAR) Highways (99.96% public) Sewage/waste (99% public) Latest 12-mo. change: 15% Latest 12-mo. change: 2% Amusement & recreation (55% public) Water supply (94% public) Latest 12-mo. change: -8% Latest 12-mo. change: -4% Source: Census Bureau construction spending reports

  16. Construction spending: developer-financed (billion $, SAAR) Retail (private) Office (82% private) Total Private Public Latest 12-mo. change: 11% (private 17%; public -10%) Latest 12-mo. change: 14% Warehouse (private) Lodging (private) Latest 12-mo. change: 48% Latest 12-mo. change: 33% Source: Census Bureau construction spending reports

  17. State construction employment change (U.S.: 2.1%) 12/12 to 12/13: 34 states up, 15+ DC down, 1unchanged Over -10% -5.1% to -10% -0.1% to -5% 0% 0.1% to 5% 5.1% to 10% Over 10% 0.2% -0.3% -2% 2% NH2% 7% 5% 7% 2% -0.3% 2% VT 4% 5% 8% 5% -2% 2% -3% MA3% 1% 0% -0.2% -0.1% -5% 6% -1% 4% 3% CT12% RI5% 2% -3% 4% -2% DE-1% NJ-3% 1% -1% -1% 2% 3% 5% 7% 1% 18% MD 3% DC-5% 1% Shading based on unrounded numbers 8% 4% HI5% • Source: BLS state and regional employment report

  18. Source: BLS

  19. Construction Employment Change from Year Ago1/08-11/13 (seasonally adjusted) U.S. 3.1% Texas 2.2% 34 out of 51 Source: BLS

  20. Construction employment, Dec. ’13 vs. peak • US: construction -25% (-1.9 million) below Apr. ‘06 peak • States: LA & ND at new peak in 2013, 45 states > 10% below • Metros: only 21 of 339 at new Dec. peak, not seas. adjusted Peak in 2013 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. Construction spending, labor & prices, 1/11-1/14 Spending +25% but jobs only +9%. How do they do it? • Contractors charging slightly more: PPI +9% (industrial buildings) • More hours per worker: aggregate hours +12% (+3% per employee) • Implication: further spending growth will trigger bigger pickup in hiring—but will workers be available? 25% total 9% price change 15% real • Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

  22. Construction vs. overall (un)employment, 2/11-2/14 • Construction unemployment fell sharply in past 3 years • But industry employment has risen modestly • Thus, workers are leaving for other sectors, school, retiring Unemployment rates(Not seasonally adjusted, Feb. 2011-Feb. 2014) Change in unemployment & employment (Not seasonally adjusted, Feb. 2011-Feb. 2014) • Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

  23. Hardest positions to fill(% of respondents who are having trouble filling) • Source: AGC Worker Shortage Survey, Aug. 2013

  24. Material & labor costs vs. office bid prices since 12/10 PPI for materials 2/13-2/14: 0.6% PPI for offices 2/13-2/14: 2.9% ECI 12/12-12/13: 2.0% • Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI)

  25. Producer price indexes for key inputs, 1/11-2/14 (Jan. 2011=100) Steel mill products Copper & brass mill shapes Latest 1-mo. change: -1.5%, 12-mo.: -7% Latest 1-mo. change: 0.7%, 12-mo.: 2% Gypsum products Lumber & plywood Latest 1-mo. change: 1.8%, 12-mo.: 7% Latest 1-mo. change: 4.1%, 12-mo.: 12% Source: Author, based on BLS producer price index reports

  26. Producer price indexes for key inputs, 1/11-2/14 (Jan. 2011=100) No. 2 diesel fuel Concrete products Latest 1-mo. change: 0.9%, 12-mo.: 4% Latest 1-mo. change: 4.4%, 12-mo.: -6% Plastic construction products Asphalt paving mixtures & blocks Latest 1-mo. change: -0.2%, 12-mo.: 2% Latest 1-mo. change: 0.7%, 12-mo.: 0% Source: Author, based on BLS producer price index reports

  27. Best prospects for 2014 • Multifamily • Manufacturing, esp. petrochemical, oil/gas supply • Oil & gas fields • Pipelines • Warehouses • Lodging (hotels & resorts) • Rail Source: Author

  28. 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

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

  30. 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 • webinar April 17 with AIA, Reed • website: http://www.agc.org/Economics

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