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No End in Sight as Engineering and Construction Costs Edge Upward for the Eight Straight Month [return to nav]

Engineering and construction costs rose for the eighth consecutive month in June, according to IHS Markit and the Procurement Executives Group (PEG), as materials and equipment costs continued to push costs upward. Semiconductor supply has proven especially troublesome as manufacturers struggle to ramp up production to meet expanding demand in a post-pandemic economy.

“Following the lifting of lockdown measures in various countries, semiconductor manufacturers did not have the opportunity to match the pace of production with the rapid recovery in demand in the automotive and industrial electronics sectors,” said David Smith, electrical machinery pricing analyst, IHS Markit. “With most of the semiconductor supply concentrated in Japan, South Korea, Taiwan and mainland China, manufacturers have given obvious preference to local demand first, especially as freight costs remain so high globally. Procuring these inputs in the Western Hemisphere remains difficult, given delivery times and transportation costs remain elevated and will remain so for the foreseeable future.”

So, even though the IHS Markit PEG Engineering and Construction Cost Index saw a slight decline of 0.6 index points from May's reading, registering 78.2 in June, it remains firmly entrenched in expansion territory, per the report.Ihs Markit Chart

Costs Maintain an Upward March

For the past seven months, the materials and equipment sub-index has reflected escalating prices, which caused it to rise another 1.9 index points in June to a 85.0. All categories under the materials and equipment sub-index maintained a sixth consecutive month of increases in June, though index levels fell from last month in several categories. Most survey respondents did not report any shortages for materials and equipment currently, other than restrictions due to shipping.

Of note:

  • Copper prices have increased for the past year, reaching an index figure of 87.5 in both May and June, the highest readings since January 2021.
  • Costs of ocean freight from Europe and Asia to the U.S. rose for the tenth month in a row, with both categories hitting a new index peak of 95.5.
  • The electrical equipment and transformers sub-indices remained high in June at 95.0 and 87.5, respectively, as demand for semiconductors outpaces available supply.

Conversely, subcontractor labor saw a decline of 6.3 index points, bringing the index reading to 62.3 in June vs. May's 68.6. IHS Markit sees this as a reflection of less consensus among survey respondents regarding labor cost increases compared to the prior month. Despite this, overall, labor costs continued to climb for the fifth straight month in each region of the U.S. and Canada, according to survey responses.

Looking longer term, the outlook for the coming six months reflects survey respondents' expectations for future construction cost increases through the remainder of 2021, with the six-month index coming in at 66.5 overall. The materials and equipment component registered at 67.0 in June, while subcontractor labor had a reading of 65.2. IHS Markit notes that labor costs are expected to continue to rise in all regions of the U.S. and Canada, based on survey responses.

Information provided by IHS Markit and edited by Becky Schultz.

US Housing Starts Bounce Back, But the Housing Shortage Continues to Grow [return to nav]
  • Both single-family (4.2%) and multifamily (2.4%) starts improved during the month.
  • Building permits slipped 3.0%, with declines in single-family and multifamily permitting.
  • The NAHB/Wells Fargo Housing Market Index fell two points to 81 in June.

Total U.S. housing starts in May jumped 3.6% to a 1.57-million-unit seasonally adjusted annual pace, according to monthly data released by the U.S. Commerce Department. In recent months, housing starts have drifted down off highs seen earlier in the year.

“However, builders continue to push through the headwinds of soaring building material costs and supply chain constraints in order to meet robust demand for single-family homes, townhomes, condos and apartments,” according to Charlie Dougherty, economist at Wells Fargo Securities. “On a year-to-date basis, housing starts are running 25.1% above prior year levels.”

Single-family completions declined in both April and May, and single-family building permits fell 1.6%, the second straight monthly decline.

With multifamily construction’s 2.4% May growth, the segment is now up 12.1% year-to-date. But multifamily permits fell 5.8% during May.

Long lead times and sharply higher building materials prices are weighing on builder confidence. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) fell two points to 81 in June. Soaring material costs have translated to a rapid rise in new home prices, which has been pushing some prospective home buyers to the sidelines. Builder sentiment regarding the sales environment, both present and over the next six months, declined during the month, and prospective buyer traffic fell two points to 71.

Despite the monthly drop, the index of builder confidence remains above 80 which is still elevated compared to recent history. “Ongoing strength in the HMI suggests single-family construction will remain strong, despite persistent supply-side challenges,” says Dougherty.

In fact despite COVID-19, work started on 1.38 million homes in 2020, the best year since 2006. More than 990,000 of those were single-family homes, and at the seasonally adjusted annual rate the U.S. Commerce Department estimated for May, builders will start 1.57 million single-family homes this year.

Just over 389,000 apartment units began construction in 2020. There were bigger years than that in 2015, 2016 and 2019, but before them you have to go back to 1988 for a year in which more multifamily units were started. At the seasonally adjusted annual rate the U.S. Commerce Department estimated for May, builders will start 465,000 total multifamily units before 2021 is over.

All of this home building hasn’t helped close the nation’s housing shortage, which swelled to 3.8 million units, according to Freddie Mac, up from 2.5 million units in 2018. The underlying problems were only exacerbated during the pandemic.

“The inequalities amplified by the COVID-19 pandemic remain front and center,” wrote the authors of the State of the Nation's Housing 2021 report, released earlier this week. Inequalities include shortages of housing near jobs, affordable housing and starter homes, as well widening racial inequalities around ownership, access and wealth.

There was a striking rise in home sales during the pandemic. Existing-homes sales were up an average of 20% from September 2020 through February 2021, and new single-family home sales rose 20.4% in 2020. Coincident restrictions on supply of lots, building materials and labor building ushered in dramatic price increases. The Wall Street Journal reported in late May that the median price of a new home sold in April was $372,400, up 20.1% from a year earlier, the strongest annual gain since 1988. The median sales price for existing homes rose 19.1% in April to $341,600.

 This dynamic brought immense increases in wealth to existing homeowners, who often took advantage of record-low interest rates to drive record levels of mortgage refinancing and slash their monthly payments. Meanwhile, desperate buyers watched the cost of down payments climb out of reach.

“In effect, the COVID housing market comforted the comfortable,” according to reporting on the State of the Nation's Housing 2021 this week by Bloomberg. “An ‘acute shortage of homes for sale’ mirrored an explosion in second-home sales.”

The average price-to-income ratio, a measure of an area’s median home costs versus its median income, hit 4.4 last year, the highest since 2006, with 23 markets hitting 5.0. In San Jose, that ratio stood at 10.9, the highest in the country.

Longstanding inequities like the Black-white homeownership gap, which hit a 30-year high in 2019, have been worsened by the pandemic, according to Daniel McCue, a senior research associate at the Harvard Joint Center for Housing Studies, reported by Bloomberg. So has the generation gap: Between 2016 and 2019, the number of Boomer homeowners grew by 800,000 annually, more than the 500,000 annual increase of all other generations combined.

Builders Start Blaming Waning Confidence on Material Prices Just Before Lumber Prices Fall [return to nav]

Rising material prices and supply-chain shortages resulted in builder confidence dipping to its lowest level since August 2020. The latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) shows that builder confidence in the market for newly built single-family homes fell two points to 81 in June. A reading above 80 is, nevertheless, a signal of strong demand in a housing market lacking inventory.

NAHB’s statement on the monthly data release reads, “Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” says Robert Dietz, chief economist for NAHB. “These higher costs have moved some new homes beyond the budgets of prospective buyers, which has slowed the strong pace of home building.

“Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.”

Lumber, steel, plastics, gypsum, wallboard, insulation and cement prices have all been escalating for months, many setting records. Associated General Contractors’ data shows April input costs jumped 19% compared to the same month last year, up from the 12.4% annual increase recorded in March. U.S. Bureau of Labor Statistics data measured prices for lumber and plywood spiking 86% from April 2020 to April 2021.

The U.S. laid 24% tariffs on Canadian lumber in April 2017, which hurt demand, and some Canadian mills closed locations. Then the pandemic shattered labor and supply chains, while spurring a spike in residential remodeling and housing construction that drove lumber demand, and prices, off the charts.

"You are going to see this constriction for probably the next 12 to 18 months," quotes Thomas CEO Tony Uphoff saying. Uphoff runs a platform for product sourcing and supplier selection for the real estate industry. "What's unclear from any of the folks that track this is how much of this boom of residential housing real estate development will last."

In the June 13 story, Bisnow reports 56% of multifamily developers surveyed by the National Multifamily Housing Council between May 17 and June 1 reported delays caused by rising raw material prices and the overall economic infeasibility of new projects.

In an abrupt shift, however, a June 15 Bisnow post reports lumber prices dropping to the lowest level since March. The early-May record price of $1,711.20 per thousand board feet is now below $1,000 per thousand board feet for delivery in July.

The Wall Street Journal reports today, that lumber futures posted declines in 14 of the past 16 trading days (even as futures remain nearly three times what is typical for this time of year). The framing composite index by pricing service Random Lengths fell $122 to $1,324 as of Friday, the most it has ever fallen in a week.

Some lumber stockpilers are selling what they’ve stashed, providing additional pressure on prices. With copper prices drifting down from record highs and steel prices falling in China, construction economics, or at least the conversation about it, may shift significantly again soon. 

US Construction Spending Lifted Modestly by Tempered April Home-Building Growth [return to nav]

The Commerce Department said on Tuesday that the seasonally adjusted annual rate of the value of all construction put in place in April rose just 0.2% after 1.0% growth in March. Reuters reports that economists they polled had forecast a 0.5% gain in April construction spending.

But actual construction spending, an economic line item that typically accounts for about 4% of gross domestic product, is up 5.8% year to date.

Slowing residential remains the bright spot

The residential sector once again accounted for most of the modest monthly gain in overall construction.April 2021 Construction Spending Segmentsdata: US Department of Commerce; graph:

Spending on residential projects rose 1.0% during the month, after jumping 2.6% in March. Outlays for single-family projects rose 1.3%, as builders continued pressing to meet the recent surge in home buying that has driven inventories of completed homes to historic lows. Spending on single-family residential construction is another segment whose April couldn’t match March momentum, when spending jumped 2.3%. But comparing year-to-date outlays is encouraging, as home building is more than 30% above the first four months of 2020.

Spending on multifamily projects rose 1.9%. A sharp increase in leasing activity across numerous markets has developers moving forward with apartment projects that had been put on hold. Outlays for home improvements rose 0.3% and would have likely risen more if homeowners could have found contractors to do the work.

Nonresidential is not quite so bad

Nonresidential outlays slipped 0.5%, marking the category’s fifth straight month of decline. The most damaging drops include a 1.5% decline in spending on power construction – currently the largest nonresidential construction segment – which is down 5.6% year to date. Another of the Big 6 nonresidential categories, educational construction, slipped 0.6% and is off 5.7% year to date.

Office and commercial outlays improved during the month, while lodging outlays were flat. That’s relative improvement in these sectors, and Wells Fargo Securities’ Senior Economist Mark Vitner calls it, “The latest sign that construction is beginning to rebound as consumers venture back out in the economy and businesses cement plans to bring their employees back to work.”

Spending was down on a monthly basis in nine of 16 nonresidential subcategories. Both private and public nonresidential construction spending were down 0.5% for the month.

“The fact that nonresidential construction spending continues to decline is no surprise whatsoever,” said Associated Builders and Contractors’ Chief Economist Anirban Basu. “Many factors are at work, including the historic lag between broader economic recovery and the onset of persistent recovery in nonresidential construction. In other words, nonresidential spending levels reflect what the broader economy looked like about a year ago. A year ago, the economy was in dire shape.

“There’s more,” said Basu. “Conventional wisdom holds that many of the projects postponed during the earlier stages of the pandemic are set to come back to life. It is for this reason that many contractors have reported rising backlog and growing confidence in the six-month outlook for revenues, staffing levels and profits.

“But just when it seemed safe to get back into the water, a new set of challenges has emerged. Among these are input shortages, rapidly rising materials prices and ongoing issues securing sufficiently skilled workers. What all this has done is to suppress the vigor of nonresidential construction’s current recovery by inducing certain project owners to further delay their projects, hoping to ultimately receive more favorable bids.”

Material prices setting records

Activity continues to improve, but according to the April's Producer Price Index (PPI), prices for materials and components for construction were up 12.9% year-over-year. The sharp upturn in lumber prices has received the most attention, however prices for most basic construction materials are on the rise, notably steel, copper and plastic products. On top of that, costs for everything from HVAC systems, appliances, lighting fixtures, engineering services and freight are similarly headed higher.

Longer lead times and sharply higher prices for materials stand to be a significant obstacle moving forward. Still, there are signs that construction activity will continue to improve. Total building permits (both single-family and multifamily) reached a 1.76 million-unit pace in April. Total permits are up over 32% on a year-to-date basis, which means residential construction should continue to be robust.

Nonresidential construction's prospects continue to brighten. The Architecture Billings Index (ABI), which tracks billings, inquiries and design contracts at architecture firms, rose to 57.9 in April, the highest level since 2007. The recent upswing in the ABI means that nonresidential construction should improve considerably over the course of the next few years. Approximately 37% of firms (the largest share) reported that rising material costs were becoming a serious problem, while an additional 35% of firms said that it has been a moderate problem.April 2021 Construction Spending Historydata: US Department of Commerce; graph:

Congress Pushed to Find Both Short- & Long-Term Funding for Infrastructure [return to nav]

The FAST Act, which authorized $305 billion over fiscal years 2016 through 2020 for highway, highway and motor vehicle safety, public transportation and other transportation programs, was extended by Congress last September for one year. That reauthorization, which fuels the Highway Trust Fund (HTF), ends September 30th of this year and the uncertainty of what the future of highway funding will look like is causing concerns for road building contractors. 

The total shortfall over the next 10 years for the HTF is projected to be $195 billion if the taxes that are currently credited to the trust fund remain in place and if funding for highway and transit programs increases annually at the rate of inflation.  According to recently released baseline projections from the Congressional Budget Office (CBO), in order to simply maintain the current HTF spending levels adjusted for inflation, Congress will need to identify $74.8 billion in additional revenues for a five-year surface transportation reauthorization bill through 2026. 

If the trust fund’s balances were to be exhausted, the federal government would not be able to make payments to states on a timely basis. As a result, states would find it nearly impossible to plan future infrastructure investments without knowing the amount or timing of payments from the Treasury. 

During a May 18 Senate Committee hearing on Funding and Financing Options to Bolster American Infrastructure, the American Association of State & Highway Transportation Officials (AASHTO) made it known that Congress needs to find funding options that bolster infrastructure funding for both the short- and long-term to help move projects along immediately. 

"Projects that state DOTs undertake connect people, enhance the quality of life for our citizens, and – just as important – stimulate economic growth in each community where they are built,”  Victoria Sheehan, commissioner for the New Hampshire Department of Transportation and the 2020-2021 AASHTO president said in her written testimony. “However, the current trajectory of the HTF – the backbone of the federal surface transportation program – is simply unsustainable as it will have insufficient resources to meet current federal investment levels beyond fiscal year 2021.” 

Solvency of the Highway Trust Fund

For more than a decade, the government has been spending more each year from the HTF than the revenues collected for it, which are mostly taxes on gasoline and diesel fuel and various taxes on heavy trucks. Over the years, vehicles became more fuel efficient, Federal gas tax revenues were never raised and more electric vehicles have entered the market, further dwindling the spending power of this crucial funding mechanism. 

Any increase in spending from the trust fund would obviously require additional income to it. Joseph Kile, director of microeconomic analysis for the CBO, testified before congress with his ideas on how to shore up the HTF.

"Currently, users impose many costs that they do not pay for, including wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions," he said. "A combination of taxes on fuel and mileage that made users pay for more of the costs they impose would make use of the system more efficient."

Kile said that if lawmakers wanted to increase revenues by charging users of the system, they would have various options:

  • One option would be to increase existing taxes on gasoline and diesel fuel. Those taxes have been unchanged since 1993. For instance, increasing them by 15 cents per gallon and indexing them to inflation would raise $26 billion in revenues in the first year. That amount would increase gradually over time.
  • Another option would be to impose new taxes on users of the system. For instance, the government could impose a tax on vehicle miles traveled (VMT). Some states—Kentucky, New Mexico, New York, and Oregon—already levy VMT taxes on commercial trucks. CBO recently found that each 1 cent per mile of federal tax would raise $2.6 billion per year if it was levied on all commercial trucks and all roads, once the practical steps to implement it were in place.

 Biden has already said a gas tax increase is off the table to pay for infrastructure and his Administration has also reported they are not interested in user-based fees to pay for roadways. How then will we pay for our roadways?

The industry awaits leadership in Washington on this matter. Stay tuned to for updates. 

Did the April Housing-Starts Surprise Result from Weather or Materials and Labor Shortage? [return to nav]

U.S. housing starts fell significantly more than expected in April. The Commerce Department’s monthly data release Tuesday estimating housing starts fell 9.5% in April to a 1.569 million-unit seasonally adjusted annual rate.

Reuters’ monthly economist poll had showed a consensus forecast of starts falling to a rate of 1.710 million units.

An 'eye-opening drop'

Wet weather in the South and Midwest may take some of the blame, but the 13.4% plunge in single-family housing starts while the housing industry is running at 2006 levels raises concern that home builders are also challenged by constrained material supply, soaring prices and sparse labor.

Single-family starts have declined three of the last four months from a 14-month high in December. Again, weather in late January and early February could hold a lot of responsibility, but building permits for single-family homes fell 3.8% in April, too. During unprecedented demand for single-family homes, permits have dropped in two of the past four months. Responding to an economic-conditions survey of manufacturers and services businesses by The Institute of Supply Management, one construction professional noted how frustrating finding labor has become, saying “We are not accepting all the work that we could if we had the labor.”April 2021 Regional Us Housing Startsdata: US Department of Commerce; table:

Single-family starts fell in every region except the West, where they were unchanged for the month.

“The drop in single-family starts is eye-opening, as it is usually the more stable component of housing starts and demand for homes is clearly running strong across the country,” says Mark Vitner, senior economist with Wells Fargo Securities. “We suspect that April's drop was due to some temporary factors. Rainy weather in the South, which accounts for more than half of all starts, and the Midwest appears to have slowed construction somewhat.”

Upside gathering?

The number of single-family homes where permits have been authorized but construction has not yet started rose 4% in April and has been trending higher in recent months. Shortages of lumber, appliances and other building materials seem to have caused many builders to limit the number of homes they started in April. Problems appear to be most acute in South, where the number of homes authorized by building permits but not yet started jumped 5.4%. The backlog of not-yet-started single-family homes has risen 26% since the end of the last year, which should provide strong momentum to home building later this year as supply catches up with demand.

The monthly NAHB/Wells Fargo Home Builders Index, which leads by a month, remained unchanged near historic highs in May at 83, and the current sales conditions series held at 88.

Overall permits rose 0.3%, with all the gain coming from projects with five units or more. Starts of projects with five units or more, which are mostly apartments, rose 4% in April to a 470,000-unit annual rate, with all of the increase coming from the West and Northeast.

April 2021 Us Housing Starts And Permitsdata: US Department of Commerce; graph:“Apartment construction appears to be revving back up, as demand has improved across the country, including many of the hardest hit urban markets,” says Vitner. “We expect multifamily starts to ramp up further as supply-side challenges ease up. The backlog of projects with five units or more authorized by building permits but not yet started rose 5.4% in April and is up 22.5% since the end of last year.

“Lumber prices have eased a bit in recent days, as mills scramble to increase production amid still sky-high prices. Labor and many other key building materials remain in short supply, however, and continue to be major headwinds for home building until at least this fall.”April 2021 Us Housing Starts Historydata: US Department of Commerce; graph:

Weak March US Construction Spending Rebound Masks Nonresidential Construction’s Struggles [return to nav]

The value of U.S. construction put in place in March eked out 0.2% growth after falling 0.6% in February. Commerce Department estimates measured weaker than expected performance, as economists polled by Reuters had forecast construction spending surging 1.9%.

Construction spending, which accounts for about 4% of gross domestic product, in the first quarter of the year was 4.5% greater than in 2020.

March 2021 Us Construction Spend Segmentsdata: US Department of Commerce; table: ForConstructionPros.comSpending on private construction projects rose 0.7% in March, after a 0.3% drop in February, lifted by investment in single-family homebuilding. There is strong demand for housing but supply has lagged amid expensive building materials as well as land and labor shortages.

Phenomenal residential spending growth is carrying a declining nonresidential construction sector. As you can see on the table at right, new private single-family residential construction grew 2.0% in March and soared 26.9% in the first quarter above the same period of 2020. And despite 0.3% slippage in March, multifamily construction is up a whopping 14.5% year-to-date over 2020.

In contrast, private nonresidential construction dropped 0.9% in March. Nine of the nonresidential segments posted spending declines for the month, with notable drops in the four largest segments, and all of the private nonresidential spending segments are down – seven of them more than 9.0% – year-to-date.

“While the longer-term outlook for nonresidential construction is superb, the pandemic is lingering, creating much damage to commercial real estate fundamentals,” said Associated Builders and Contractors Chief Economist Anirban Basu. “The lodging, office and commercial segments experienced declines in spending in March. Office vacancy rates are elevated in many markets, and the industry experienced negative net absorption. The trials and tribulations of hotel operators, retailers and restauranteurs are also well known.”

Spending in five of 12 public nonresidential segments declined in March, with hefty drops in the two largest segments, and ten public segments are down substantially year-to-date.

“While large-scale federal infrastructure outlays are likely in the future, that money has yet to arrive,” said Basu. “State and local government finances have generally held up far better than many had predicted earlier in the COVID-19 crisis, but many governments have had to spend significant operational sums to countervail the public health crisis and therefore had to redirect money away from infrastructure.

ABC’s Construction Backlog Indicator has foreshadowed this state of affairs for months. The most recent readings suggest that the construction spending recovery will be slow over the near-term. However, as the broader economic recovery picks up additional speed later this year with more pervasive vaccinations and re-openings, both private and public construction spending should begin to manifest more positive momentum later this year and into 2022.”March 2021 Us Construction Spendingdata: US Department of Commerce; graph:

Construction Adds 110,000 Jobs in March [return to nav]

Job growth was "widespread" in the month, led by gains in leisure and hospitality, public and private education and construction, according to the latest report released by the department's Bureau of Labor Statistics.

Sectors critical to economic recovery saw some of the biggest gains as the construction sector added 110,000 jobs with commercial and residential homebuilding projects continuing to thrive. Projects also picked up in other states last month after severe weather halted work for much of the nation in February causing job losses of 56,000.

For construction, it was the strongest month of hiring since June 2020. The industry has added 931,000 jobs since April 2020, recovering 83.6% of the jobs lost during earlier stages of the COVID-19 pandemic.

The construction unemployment rate fell to 8.6% in March from 9.6% in February, but it is still 1.7 percentage points higher than in March 2020. Unemployment across all industries declined from 6.2% in February to 6.0% in March.

A significant percentage of the job growth was registered in nonresidential construction, which added 73,100 jobs in March. The number of nonresidential specialty trade contractor positions expanded by 38,200, while the nonresidential building segment added 7,600 positions.

"Here comes the tsunami of economic and employment growth across America," said ABC Chief Economist Anirban Basu. "With more stimulus on the way, the United States may end up growing faster than China this year, which would be the first time that occurred in decades. 

Basu said that while any infrastructure stimulus should be geared toward projects generating the highest rates of return and open to bids by all competent contractors, the sheer volume of money flowing into the economy is set to create massive forward momentum for the balance of 2021 and likely through 2022. 

Contractor optimism seems to reflect this building momentum, according to the latest ABC Construction Confidence Index.

First Infrastructure Bill to Address Roads, Bridges; Second to Focus on Social Issues [return to nav]

White House press secretary Jen Psaki appeared on "Fox News Sunday" where she indicated that the Biden administration would pursue two pieces of legislation as part of its push to rebuild the nation's infrastructure. 

"It will be two separate proposals, and we'll work with the Senate and House to see how it should move forward," she said.

The first proposal will likely address physical infrastructure such as roads, bridges and efforts to expand rural broadband access, according to the press secretary, while a separate bill unveiled in April will cover issues such as child care and health care.

News that the push will be split into two pieces of legislation comes just days after a source close to the White House revealed that the price tag for Democrats' next legislative push could be upwards of $4 trillion and that it would be a wide-ranging effort aimed at funding a host of domestic programs such as community college tuition, health care subsidies, pre-K programs and more.

Psaki said the White House had yet to settle on its legislative strategy for the two bills, “but I will say that I don’t think Republicans in this country think we should be 13th in the world as it relates to infrastructure," she said.  “Roads, railways, rebuilding them, that’s not a partisan issue.

Infrastructure News Coming This Week

President Joe Biden will lay out the first part of his multitrillion-dollar economic recovery package this week, focusing on rebuilding roads, bridges and other infrastructure, followed by a separate plan later in April addressing child and health care.

That plan “will address a lot of issues that American people are struggling with — child care, the cost of health care,” Psaki said.

Biden will release details in a speech Wednesday in Pittsburgh about his proposal for federal investments in physical infrastructure, an issue that has drawn Republican support despite wariness over a pricey package so soon after passage of the $1.9 trillion Covid-19 relief plan.

Democrats have been aiming for a broader package that could include policy changes on green energy, immigration and other issues — as well as make permanent some of the just-passed Covid-19 assistance such as child tax credits.  Congressional Republicans are pushing back against this type of legislation, saying that the focus needs to be on our crumbling roads and bridges, not broader Democratic priorities. 

The extension of the current federal surface transportation authorization law, the Fixing America’s Surface Transportation (FAST) Act, expires on Sept. 30, 2021.Before then, Congress will need to deliver on a longterm, robust surface transportation reauthorization bill and a permanent fix for the Highway Trust Fund (HTF). Despite our obvious national divide on several topics, transportation infrastructure remains one of the few areas where Congress should be able to find bipartisan, common ground.

Construction Saw Double-digit Declines in Hiring and Projects in Q4 and Full-year 2020 [return to nav]

After a banner 2019 in construction, 2020 brought the construction industry the same gift it brought to all of us — uncertainty, according to the Quarterly Construction Metrics Index, released by Viewpoint, a provider of integrated construction accounting and project management software and solutions. Hiring was down 30% year-over-year, pending projects stayed well below average throughout the spring and summer and contract values ended the year down by 25%.

The Q1 Index was aggregated from anonymized, real-time data entered into Viewpoint’s construction management suite, with a focus on data inputted during the fourth quarter of 2020 and examined year-over-year. Sourced from roughly 1,000 Viewpoint customers who collectively managed over $4 billion dollars worth of construction projects in 2020, it examined data related to job creation, project stats, contract values and other notable data points.

Hiring Trends

“Overall construction employment in 2020 was marked by a sharp decline in March when the pandemic first hit, followed by an increase in hiring in the second and third quarter, which is typical for the spring/summer months when many construction projects begin breaking ground,” noted index author Anne Hunt, director of data and analytics at Viewpoint. “However, the employment rebound was still far below the net hiring averages seen during the same time of year in 2019.”

Key findings show:

  • Hiring was down 30% year over year; however, 2019 was a banner year for the industry with hiring up 13% as compared to 2018.
  • 2020’s fourth quarter saw even steeper hiring declines, particularly for heavy highway (-1%) and general contractors (-2.5%).
  • Specialty contractors maintained net positive employment throughout 2020, including in the fourth quarter (+0.7%). This could be attributed to their ability to do projects backlogged by general contractors and/or routine service/maintenance work.
  • While the average industry employee tenure is about 4.1 years, heavy highway employees averaged 5.2 years; specialty contractor employees averaged 4.4 years; and general contractor employees averaged 3.5 years.

Hiring differed by region depending on when the pandemic surged throughout the U.S. The Northeast saw a sharp decline in March, but rebounded over the rest of the year as the region adapted to the pandemic and it spread to other parts of the country. Most of the rest of the country experienced negative hiring growth through most of 2020 as the pandemic disrupted business, particularly in the Plains, Midwest and Southeast regions. All except the Northeast showed negative net hiring in the fourth quarter.

Project Trends

“Pending projects, which is when a project is logged in the system but not yet completed, were down throughout the year, even in Q1 2020 before the pandemic hit the U.S.,” noted Hunt. “Pending projects usually rebound in the spring and early fall, but stayed well below average in 2020 as contractors held back on starting new projects due to the pandemic and the uncertainty of the business climate.”

This trend continued into the third and fourth quarter, which saw lower than average pending and closed projects, equating to a year-over-year decline of 31%. However, overall projects were down just 5% vs. 2019. In contrast, 2019 saw a 16% increase in projects over 2018.

For all three verticals, year-over-year pending projects declined:

  • Specialty contractors: -38%
  • General contractors: -30%
  • Heavy highway: -25%

Contract Value Trends

“Overall, contract values were down year-over-year by 25%, which coincides with the declines seen in hiring trends and project starts,” Hunt reported.

The decline in contract values affected all three verticals. However, general contractors saw the largest drop in the fourth quarter (-50%), equating to a year-over-year decline of 36%. Heavy highway contract values were down 15% in Q4, for a year-over-year decline of 30%. Specialty contract values were down 18% for the fourth quarter and 18% year-over year.

Viewpoint will release a Quarterly Construction Metrics Index along with an associated webinar immediately following each subsequent quarter in 2021.

Information provided by Viewpoint and edited by Becky Schultz.

AASHTO Report Highlights How Infrastructure Investment Benefits States [return to nav]

Upgrading and expanding America's transportation infrastructure is a hot topic in the country right now, but the critical issues surrounding the advancement of our mobility solutions have been brewing for years. Growing wear and tear on our nation's roads have left 43% of our public roadways in poor or mediocre condition, a number that has remained stagnant over the past several years. 

Still, state departments of transportation press on, using what little money they have to continue improving their roads, bridges, transit systems and more. A recent report released by the American Association of State Highway & Transportation Officials (AASHTO), proves that transportation infrastructure is a critical lynchpin for increasing economic growth which results in steadily improving quality of life for the people who live there.

A recent macroeconomic analysis compiled by the Florida Department of Transportation laid out all of the positive benefits of infrastructure investment can deliver – especially at the state level. The Florida DOT’s analysis found that state’s transportation projects should yield an average $4 of benefits for every dollar invested in all transportation modes, including highway, transit, rail, airports, seaports and waterways, and spaceports.

That translates into $164 billion worth of economic benefits over the next 30 years – roughly $5.4 billion per year – in terms of economic value as measured by gross state product over the next three decades ($61 billion), increased personal income ($72 billion), and increased industry output ($99 billion).

The Florida DOT also determined via its analysis that the $4 return per transportation infrastructure dollar invested held steady despite the impact of the COVID-19 pandemic – reinforcing the durable nature of economic gains of transportation system investments. Those monetary benefits come from a variety of time-saving and efficiency gains for both individuals and businesses alike, including travel time improvements, vehicle operating cost reductions, plus lower business costs due to faster and more efficient delivery of goods, among others.

This is just one of many stories AASHTO highlighted in their report, The Benefits of Transportation: The 2021 Round-Up of State DOT Solutions that Deliver Benefits to Communities and Citizens. The projects listed here show how ongoing investment in our nation’s mobility networks continue to help businesses to grow and thrive while improving quality of life, generating more business for companies and economic well-being for Americans.

As President Joe Biden is expected to pitch another multitrillion-dollar government spending package to improve the nation's infrastructure during a trip to Pittsburgh next week, we can only hope infrastructure investment is continually seen as a priority given all the benefits it brings to the American people. 

Biden's Big Plan Up Next

According to Reuters, Biden plans to introduce a $3 trillion proposal on March 31. The Biden administration has not yet provided many details on the trip, simply describing in a Wednesday news release that the president will speak about his "economic vision for the future" and plan to "Build Back Better."

The details of the package reveal a multi-pronged approach for tackling domestic issues. In addition to billions of dollars for infrastructure, the plan – which could cost about $4 trillion in total – would address inequities, create jobs and fund education programs like universal pre-kindergarten and tuition-free community college.

While it might be revealing that Biden is kicking off his infrastructure pitch in a blue-collar city like Pittsburgh, the plan is expected to contain a multi-faceted approach beyond just building and restoring bridges, highways and roads. It is reported to also include funding for clean energy, electric vehicle charging stations and other climate change solutions.

Supply Chain Disruptions Drive Construction Costs Upward for the Fifth Consecutive Month [return to nav]

Engineering and construction costs continue their upward climb, increasing for the fifth consecutive month in March, according to IHS Markit and the Procurement Executives Group (PEG).The headline IHS Markit PEG Engineering and Construction Cost Index (ECCI) totaled 79.5 for the month, up from a reading of 68.2 in February, indicating widespread engineering and construction costs increases.

Based on data independently obtained and compiled by IHS Markit from procurement executives representing leading engineering, procurement and construction firms, the ECCI tracks industry specific trends and variations, identifying market turning points for key projects, and is intended to act as a leading indicator for wage and material inflation specific to this construction and engineering industry.

According to the March report, the materials and equipment portion reached 83.3, marking the fourth straight month of price increases and an 8.5 point increase from the prior month. The subcontractor labor index came in at 70.5, indicating labor price increases were even more widely felt than in February.

For the third consecutive month, survey participants saw increases for all categories under the materials and equipment sub-index:

  • Costs of ocean freight from both Europe and Asia to the U.S. increased for the seventh consecutive month.
  • The carbon steel pipe price index rose to 83.3 in March, an increase of 4.7 points from February.
  • Fabricated structural steel prices rose 11.9 points from a score of 71.4 to 83.3.
  • Transformer prices recorded a fourth straight month of price increases, up to 77.3 in March from 66.7 the prior month.
  • Copper prices continued to increase, notching their eighth consecutive monthly gain.

“We continue to see the copper market as a richly priced one that has seen prices swing by over $800 per metric ton in the past month,” said John Mothersole, director of pricing & purchasing research, IHS Markit. Copper fundamentals are currently tight as strong Chinese consumption growth and heavy investor buying provide significant support for copper demand.

"Pandemic-related disruptions to mine production and port operations in South America have roiled the market on the supply side," he continued. "The net result has been a drawdown in visible inventory on all the major exchanges and a takeoff in prices.”

The current subcontractor labor costs sub-index was reported at 70.5 in March, a substantial climb over February’s 52.7. According to survey responses, labor costs rose in all regions of the U.S. and Canada for the month, despite significant job losses reported in the industry in FebruaryAccording to U.S. Bureau of Labor Statistics, during the last 10 months, construction has added 805,000 jobs, recovering 72.3% of the jobs lost during the earlier stages of the pandemic.

Engineering and construction costs will continue their upward climb for the foreseeable future, according to ECCI survey respondents. The six-month headline expectations for future construction costs registered 81.3 in March, displaying  expectations of continued price increases through the first half of 2021. Both sub-indexes reflected this sentiment, with the materials and equipment sub-index totaling 83.6 this month. The six-month expectations index for subcontractor labor rose to 76.0 in March, with costs expected to continue rising in all regions of the U.S. and Canada.

Most survey responders did not report any shortages for materials and equipment, other than shipping constraints.

To learn more about the IHS Markit PEG Engineering and Construction Cost Index or to obtain the latest published insight, please click here.

Information provided by IHS Markit and edited by Becky Schultz.


Architectural Billings Show Positive Growth for First Time Since Start of Pandemic [return to nav]

For the first time since the start of the pandemic, the Architecture Billings Index (ABI) achieved a positive score, according to the latest Architecture Billings Index released by The American Institute of Architects (AIA). The ABI is an economic indicator for nonresidential construction activity, with a lead time of approximately nine to 12 months. It is used as a leading monthly economic indicator to assess business conditions and predict and track the market.

The February report maintains the momentum of the nearly three-point bump seen in the previous month, coming in at an ABI score of 53.3, a substantial rise compared to January's 44.9 and the first positive score since February 2020. A score above 50 indicates an increase in billings and is an indication that more construction projects are moving into the planning stages.

February also marked the first time the design contract score rose back into positive territory since the pandemic began, with a score of 51.6 compared to 48.8 in January. New project inquiries rose for the third month in a row, achieving a 22-month high with a score of 61.2 vs. 56.8 reported in the previous month.

“Hopefully, this is the start of a more sustained recovery. It is possible that scores will continue to bounce above and below 50 for the next few months, as recoveries often move in fits and starts,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Beyond the encouraging billing data, architecture employment added 700 new positions in January and has now regained 45% of the jobs that were lost since the beginning of the pandemic.” 

Additional ABI highlights for February include:

  • Regional averages: South (52.4); West (49.5); Midwest (49.3); Northeast (46.9)
  • Sector index breakdown: mixed practice (52.5); commercial/industrial (50.5); multi-family residential (48.3); institutional (47.8)

The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts and inquiries are monthly numbers.

Information provided by The American Institute of Architects and edited by Becky Schultz.

Equipment Finance Industry Confidence Hits Highest Level in Three Years [return to nav]

Overall, confidence in the equipment finance market reached its highest level in three years, with half of the key industry executives who responded to the Equipment Leasing & Finance Foundation’s March 2021 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) forecasting business conditions to improve over the next four months as economic activity expands. This should mean greater financing availability for those seeking to invest in their business.

The MCI-EFI reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $900 billion equipment finance sector. It shows confidence in the equipment finance market rose from 64.4 in February to  67.7 in March, the highest level seen since April 2018.

Expanding availability of COVID-19 vaccines plays a substantial role in growing confidence levels. “The vaccine rollout is now progressing quickly, and while some predict we won't see the end of this pandemic until year end, I believe everyone that wants a vaccine will be able to receive one by early May,” projected survey respondent Bruce J. Winter, president, FSG Capital, Inc. “This bodes well for the return of strong economic activity that will almost certainly boost capital spending significantly.”

“As COVID restrictions lift and companies have a clearer vision of future demand, it will help companies make more informed capex decisions,” added Vincent Belcastro, group head syndications, Element Fleet Management.

Lenders are increasingly upbeat about financing activity for the year and going forward, though cautions remain. “We are relatively positive on domestic and global economic activity for this year, and likely next,” noted David Drury, senior vice president and head of equipment finance, Fifth Third Bank. “Despite lingering disruptions, with the tailwinds of government stimulus, central bank liquidity, excess capacity and pent-up demand, global economic growth may positively surprise in 2021.

“The big question that could change our mind would be a return of inflation, which would change the dovish nature of most global central banks,” he continued. “Higher inflation would lead to higher interest rates and less of an incentive for businesses to borrow and invest.”

March 2021 Survey Results  

When asked to assess conditions over the next four months:

  • 50% of executives responding said they believe business conditions will improve, up from 46.2% in February; 46.4% believe business conditions will remain the same over the next four months, unchanged from the previous month and 3.6% believe business conditions will worsen, a decrease from 7.7% in February.
  • 42.9% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase; 53.6% believe demand will “remain the same”; and 3.6% believe demand will decline, all relatively unchanged from February.
  • 28.6% of respondents expect more access to capital to fund equipment acquisitions, up from 23.1% in February; 71.4% of executives indicate they expect the “same” access to capital to fund business, a decrease from 76.9% last month; none expect “less” access to capital, unchanged from the previous month.  
  • 42.9% of the executives report they expect to hire more employees, up from 38.5% in February; 57.1% expect no change in headcount, a decrease from 61.5% last month; none expect to hire fewer employees, unchanged from February.

Of those surveyed, 3.6% of the leadership rate the current U.S. economy as “excellent,” an increase from none the previous month. More than three-quarters (78.6%) evaluate the current U.S. economy as “fair,” up from 76.9% in February, while 17.9% evaluate it as “poor,” down from 23.1% last month.

When asked about the outlook for the next six months:

  • 60.7% of survey respondents believe U.S. economic conditions will get “better”, an increase from 50% in February; 32.1% indicate they believe the economy will “stay the same”, a decrease from 38.5% last month; and 7.1% believe economic conditions in the U.S. will worsen, down from 11.5% the previous month.
  • 39.3% of respondents indicate they believe their company will increase spending on business development activities, up from 30.8% last month; 60.7% believe there will be “no change” in business development spending, a decrease from 69.2% in February; and none believe there will be a decrease in spending, unchanged from last month.

Information provided by the Equipment Leasing & Finance Foundation and edited by Becky Schultz.

87% of Contractors Predict Steady Revenue Streams for 2021 [return to nav]

Data from the first quarter U.S. Chamber of Commerce Commercial Construction Index reveals contractors are growing more optimistic, mostly driven by a rise in revenue expectations. They also have better outlooks on hiring and equipment spending plans as business concerns related to the coronavirus pandemic lessen.

In the first quarter of this year, 36% of contractors expect their revenue to increase over the next year, a jump of 11 percentage points from 25% in Q4 2020. Eighty-seven percent expect their revenue to either stay the same or increase, up from 86% last quarter. Most (86%) contractors also report a moderate to high level of confidence that the U.S. market will provide enough new business in the next year. Nearly a quarter (24%) report a high level of confidence, up from 19% in Q4 2020.

Hiring plans are also positive as close to half (46%) of contractors say they will employ more people in the next six months, up from 37% in Q4 2020. The same percentage (46%) expect to keep the same number of workers, and just 3% expect to reduce their staffing, down from 12% in Q4 2020.

“As vaccines continue to roll out, contractors are expecting to hire more workers and anticipating good times ahead. The industry still has a way to go to return to pre-pandemic levels, but rising optimism in the commercial construction industry is a positive sign for the broader economy,” said U.S. Chamber of Commerce executive vice president and chief policy officer Neil Bradley. “However, finding skilled workers was a critical issue before the pandemic, and while it has remained a chronic problem over the last year, heightened concern may be emerging again as contractors look to hire. The U.S. Chamber is committed to supporting businesses in retraining and making sure the economy has the skilled workforce it needs.”

The boost in revenue expectations drove a three-point rise in this quarter’s overall Index score to 62 from 59 in Q4 2020. The score for revenue expectations, one the Index’s three leading indicators, jumped five points to 57, while contractors’ confidence in new business opportunities rose two points to 59. Despite the gains, the Index remains 12 points below its score of 74 from Q1 2020 before the pandemic.

Skilled Worker Shortage Causes Ongoing Challenges

Alongside the positive signs of recovery come workforce challenges. This quarter, 85% of contractors report moderate to high levels of difficulty finding skilled workers, up from 83% in Q4 2020. Of those, 45% report a high level of difficulty, up from 42% last quarter, but still down 10 percentage points year-over-year from 55% in Q1 2020 before the pandemic.

Meanwhile, 88% report a moderate to high degree of concern about their workers having adequate skill levels. Forty-six percent report a high degree of concern, up from 36% in Q4 2020. Almost all (94%) contractors who reported a moderate to high degree of concern expect the problem with workers having adequate skill levels will stay the same or get worse in the next six months.

Lumber Concerns Ease, Cost Fluctuation Concerns Rise

Similar to last quarter, 71% of contractors say they face at least one material shortage. Of those, 22% are experiencing a shortage of wood/lumber (down from 31% in Q4 2020), followed by steel (14%), and pipe/PVC (10%).

This quarter, more (82%) contractors say cost fluctuations have a moderate to high impact on their business, up eight percentage points from Q4 2020, and up 17 percentage points year-over-year. Of those experiencing the impact of cost fluctuations, 43% said wood/ lumber is the product of most concern (down from 61% in Q4 2020), followed by steel (35%), and copper (27%).

Additional findings:

  • Tariff and trade concerns are up. More (35%) contractors say steel and aluminum tariffs will have a high to very high degree of impact on their business in the next three years, up from 24% saying the same in Q4 2020.
  • 37% of contractors plan to increase spending on tools and equipment, increasing from 28% in Q2 2020. Before the pandemic (Q1 2020), 54% said they planned to increase spending.  
  • 80% of contractors are still experiencing delays due to COVID-19, with an average share of 23% of their projects delayed, but that share is expected to drop to 15% looking ahead six months.
  • 58% say worker health and safety remains a top concern for their business, followed by more project shutdowns/delays (50%), fewer projects (35%), and less availability of building products (33%).

The Index comprises three leading indicators to gauge confidence in the commercial construction industry, generating a composite Index on the scale of 0 to 100 that serves as an indicator of health of the contractor segment on a quarterly basis.  

The Q1 2021 results from the three key drivers are: 

  • Revenue: Contractors’ revenue expectations over the next 12 months increased to 57 (up five points from Q4 2020).
  • New Business Confidence: The overall level of contractor confidence increased to 59 (up two points from Q4 2020).
  • Backlog: This indicator remained steady from Q4 2020 at 69.

The research was developed with Dodge Data & Analytics (DD&A), the leading provider of insights and data for the construction industry, by surveying commercial and institutional contractors. 

Construction Labor Shortages Set to Return Along with Rising Labor Costs [return to nav]

Despite losing 61,000 jobs on net in February, labor market tightness is set to rear its ugly head again in construction as the industry continues its post-pandemic recovery. According to the 2020 Marcum JOLTS Analysis of construction employment trends, job openings in December fell to 195,000, equal to roughly 2.6% of the available construction positions. This is higher than the average proportion of job openings observed from 2014-2017. It’s also higher than any month during the 2008-2013 period.

The annual Marcum Job Opening and Labor Turnover Survey (JOLTS) report, released by Marcum LLP’s national Construction Services group, extrapolates construction data from the U.S. Bureau of Labor Statistics’ Job Openings and Turnover Survey. The Construction Services Group provides audit, consulting and taxation services to clients ranging from startups to multi-billion-dollar enterprises.

In March 2020, contractors cut their workforces as project work slowed or came to a halt. More than 600,000 construction workers were laid off or discharged during that month alone. April proved even worse, according to the report, with 709,000 workers, or 10.8% of the total construction workforce laid off or discharged.

Yet, despite the substantial losses, potential workforce shortages once again loom. “When the pandemic began, some thought (and hoped) that the massive job losses observed in March and April would mitigate the skilled labor shortages that have frustrated construction firms for years,” wrote Anirban Basu, author of the report and Marcum’s chief construction economist. “That simply hasn’t happened to any meaningful degree.”  

Contractors have shown a reluctance to lose workers in an increasingly tight labor market. “In December 2020, there were 13,000 more workers who quit their construction jobs than were laid off or discharged by their employers,” Dr. Basu notes. “This was just the 17th month in the past 20 years during which quits exceeded layoffs and discharges — a clear indication of labor market tightness.” 

Contractors in some regions of the country, and particularly those working in residential construction — which has maintained surprising strength throughout the pandemic — are struggling to find labor, and that has driven up wages.

“In the midst of a gut-wrenching, economy destroying pandemic, average hourly earnings of construction employees reached their highest level on record in January 2021 ($32.11), and average weekly hours worked rose to their highest level since 2019’s third quarter,” Basu points out. “This is what might be expected from a strong economy operating under normal circumstances, not one facing a lingering pandemic and elevated unemployment.” 

The report cautions that, historically, some workers who lose their jobs during a recession don’t returnk. “According to the Census Bureau, more than 60% of construction workers who lost their jobs during the Great Recession left the industry permanently by 2013. Many of these workers found positions in other industries, while others retired altogether,” Basu writes.

For the complete report, visit 

Information provided by Marcum LLP and edited by Becky Schultz.

The Construction Industry Lost 61,000 Jobs on Net in February [return to nav]

The construction industry lost 61,000 jobs on net in February, according to an Associated Builders and Contractors analysis of data released today by the U.S. Bureau of Labor Statistics. During the last 10 months, the industry has added 805,000 jobs, recovering 72.3% of the jobs lost during the earlier stages of the pandemic.

Almost all of the job loss was in nonresidential construction, a segment in which employment declined by 60,800 jobs on net in February. Nonresidential specialty trade contractors and heavy and civil engineering both experienced significant job losses, losing 36,700 and 20,800 jobs, respectively. Nonresidential building lost 3,300 positions.

The construction unemployment rate rose to 9.6% in February and is up 4.1 percentage points from the same time a year ago. Unemployment across all industries dropped slightly from 6.3% in January to 6.2% last month.

“Today’s employment report should not cause alarm among stakeholders in the nonresidential construction industry,” said ABC National Chief Economist Anirban Basu. “In recent months, contractors have become more upbeat regarding industry prospects, as indicated by ABC’s Construction Backlog Indicator, citing rising backlog and expectations for rising employment, sales and even profit margins. While the loss of employment is never pleasant, February data were impacted by weather-related interruptions in the South, which likely resulted in some temporary job loss, but tells us little about fundamental industry dynamics.

Jobs Table 3 5 2021Associated Builders and Contractors Inc.

“The balance of the economy appears to be outperforming expectations in terms of labor market recovery, and there is now growing evidence that more pervasive vaccinations are beginning to shape economic outcomes for the better,” said Basu. “Stimulus passed by the previous presidential administration has helped to further bulk up consumer spending and there is more stimulus on the way. All of this is consistent with ABC’s long-standing forecast that the second half of 2021 will be spectacular for economic growth.

“Therein lies a potential challenge for contractors: the economy could get too hot during the months ahead,” said Basu. “Already, interest rates are on the rise and inflation expectations are at multi-year highs. A sharp rise in borrowing costs could truncate the duration of the nonresidential construction spending recovery to come, particularly in the context of still-shaky public finances and altered commercial real estate fundamentals. The optimal outcome would be solid growth coupled with moderate inflation, but the economy may end up generating euphoric growth for a time followed by a less supportive environment for construction starts and consistent economic growth. But such concerns are longer-term and speculative.”

Economists Predict Rocky Road to Recovery for Construction Industry [return to nav]

The long road to recovery from the COVID-19 pandemic will continue to be rocky according to Richard Branch, chief economist, Dodge Data & Analytics. During the 2021 First Quarter Construction Outlook update, Branch outlined the national starts forecast for 2021 across residential, nonresidential building and non-building sectors.

Currently, the U.S. economy is operating at 22% below the pre-pandemic level but Branch said higher levels of vaccination in conjunction with stimulus funding should accelerate economic recovery however. 

"The county has pent up spending that will push the economy forward much faster over the next few months," Branch said. "Pre-pandemic levels will be back around the mid-point of this year."

Branch added that not all industries will recover at that same pace and unfortunately the construction is an industry that will have a much slower recovery than the rest of the country. 

Despite the promise of recovery, volatility will remain through the first half of 2021 and beyond. 

Construction Industry Lags

Construction starts fell 9% to $778 billion since 2019 but would have been down a total of 17% if single family construction had not provided a significantStability of funding in the non-building infrastructure sector has led to a 6% gain for Highway & Bridge starts in 2021Stability of funding in the non-building infrastructure sector has led to a 6% gain for Highway & Bridge starts in 2021 boost. Construction costs are up 5.4% from where they were a year ago and that's due to higher material prices and higher labor costs. 

Many industries are starting to see a slow recovery, specifically the warehousing markets due mainly to corporations like Amazon. Stability of funding in the non-building infrastructure sector has led to a 6% gain for Highway & Bridge starts in 2021. In addition, 61 bills are currently out at the state level to raise revenues for projects which could be a strong indicator of recovery.

"At the end of 2021 we expect to be down just 4% in constant dollars from where we were in 2019 but again that's due to the strength of the residential market," Branch said. "The infrastructure sector won't return to normal 2019 levels until 2023."

Hope for a better recovery, however, lies with the potential for an influx of federal stimulus funds directed to infrastructure. President Biden’s Build Back Better plan is said to include “a $2 trillion accelerated investment, with a plan to deploy those resources over his first term.” 

"Certainly an infrastructure program would be a massive positive for this industry," Branch said. "There's certainly bipartisan support for boosting highway and bridge funding."

Dodge Data & Analytics has not yet adjusted their economic outlook to reflect a potential $1.9 trillion dollar package. 

Architectural Billing Conditions Improve Slightly as Declines Slow and Inquiries Grow [return to nav]

A slight improvement in business conditions has led to fewer architecture firms reporting declining billings, according to a new report from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for January was 44.9* compared to 42.3 in December (any score below 50 indicates a decline in firm billings). Last month’s score indicates overall revenue at U.S architecture firms continued to decline from December to January; however, the pace of decline slowed. Inquiries into new projects during January grew for the second month in a row, with a score of 56.8 compared to 51.7 in December. The value of new design contracts also reflected an easing in the pace of decline, rising to a score of 48.8 in January from 47.0 the previous month.

“The broader economy entered a soft spot during the fourth quarter of last year, and business conditions at design firms have reflected this general slowdown,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “While federal stimulus and the increasing pace of vaccinations may begin to accelerate progress in the coming months, the year has gotten off to a slow start, with architecture firms in all regions of the country and in all specializations reporting continued declines in project billings.”

Key ABI highlights for January include:

  • Regional averages: South (47.4); West (42.8); Midwest (42.2); Northeast (41.9)
  • Sector index breakdown: mixed practice (47.9); multi-family residential (44.4); commercial/industrial (44.3); institutional (39.9)
  • Project inquiries index: 56.8
  • Design contracts index: 48.8

The regional and sector categories are calculated as a three-month moving average, whereas the national index, design contracts and inquiries are monthly numbers. To learn more about recent economic developments impacting design and construction, visit AIA’s website.

*Every January the AIA research department updates the seasonal factors used to calculate the ABI, resulting in a revision of recent ABI values.

US Construction Backlog and Contractor Optimism Rise to Start 2021 Despite Shaky Outlook [return to nav]

The pandemic-induced economic slowdown is throwing off conflicting messages to those trying to anticipate what 2021 has in store for construction.

Estimated fourth-quarter U.S. GDP growth suggests recovery from the recession may be slowing. But the latest Building Materials report from Moody’s Investors Service projects total U.S. construction spending will grow 3.2% in 2021 and 3.4% in 2022, primarily driven by stable residential and public construction activity, but also dependent on recovery in nonresidential spending.

2021 State of Construction Industry: A Forecast for Uncertain Times

But the Associated Builders and Contractors’ Chief Economist Anirban Basu says, “The near-term outlook for nonresidential construction is not especially optimistic. Investment in structures was up just 3% on an annualized basis during 2020’s final quarter after declining by 33.6% and 17.4% in the year’s second and third quarters.”

Nevertheless ABC reported this week that its Construction Backlog Indicator rose for the third month in a row, adding 0.2 months to 7.5 months in the association’s January survey of contractors. Current backlog is 0.9 months lower than it was in January 2020.

ABC’s Construction Confidence Index readings for sales and staffing levels increased in January and remain above the threshold of 50, indicating expectations of growth over the next six months. The index reading for profit margins remained below that threshold, slipping to 47.5 in January.

“Though nonresidential construction spending has continued to recede for the better part of a year, the growing consensus is that the next six months will be a period of improvement,” says Basu. “While backlog is down substantially from its January 2020 level and profit margins remain under pressure, more than half of contractors expect sales to rise over the next six months and nearly half expect to increase staffing levels.

“The anticipation is that the second half of the year will be spectacular for the U.S. economy from a growth perspective, which will help lift industry fortunes as 2022 approaches. But that is not the entire story. There are also public health and supply chain considerations.

“During the COVID-19 pandemic, many contractors experienced repeated interruptions in project work. Acquiring key materials and equipment has also become more difficult, with occasional price shocks for certain commodities. With vaccinations proceeding apace, many contractors will benefit from fewer interruptions going forward and the restart of many postponed projects.”

Abc Construction ConfidenceAssociated Builders and Contractors Construction Backlog Indicator

Blue Collar Jobs Grow in December But Pandemic’s Influence Continues to be Felt [return to nav]

The blue collar jobs sector continues to be one of the few areas showing steady job improvement, with sustained growth in the fourth quarter 2020. But the latest Blue Collar Jobs Tracker analysis hints at declines ahead, pointing to January’s less than stellar national jobs data.

“Consistent job growth at the end of 2020 shows blue collar industries were finally, albeit slowly, rebounding from the beginning of the pandemic,” noted Matt Sedlar, data analyst, Center for Economic and Policy Research (CEPR). However, he added, “The January numbers that were released last week don’t paint a great picture.”

Blue Collar Jobs Tracker is a project of the Center for Economic and Policy Research (CEPR) created to take a closer look at the path of job growth in four major blue collar industries: manufacturing, mining, construction and logging. The latest report shows employment in these sectors increased by 76,000 jobs in December, or 0.38% over the previous month. The three-month average from October to December was 83,670 jobs, or a 0.42% month-to-month change.

Largely Sustained Though Modest Job Gains

Construction jobs increased by 42,000 in December, or 0.57% over the previous month. “The three-month average from October to December was 46,330 jobs, or a 0.64% month-to-month change. This reflects a strong October, with 73,000 jobs added, and a smaller increase in November of 24,000 jobs,” Sedlar pointed out.

By region, the West saw the most substantial increase, rising 1.92% over the previous month to 36,800 construction jobs and likely led by a 10.2% bump for the month in construction starts for new privately owned housing. California is now only 4,700 jobs below its February pre-pandemic peak. Arizona and Oregon did not share in the gains, however, declining by 4,100 (-2.35%) and 800 (-.74%) jobs, respectively.

Screenshot 2021 02 09 100952bluecollarjobs.usThe Northeast saw a net increase of 18,000 jobs, or 1.69% over November’s number, despite a reported 34.8% decline in new housing starts in the region in December. New York and New Jersey accounted for a good portion of the increase in construction jobs, with net increases of 8,500 (+2.29%) and 3,100 (+2.11%), respectively. 

The Midwest and South saw construction job gains of 17,500 (+1.27%) and 10,600 (+0.37%). Illinois and Indiana led the Midwest with net increases of 8,300 (+3.85%) and 3,300 (+2.19%), while Michigan saw the biggest decline of 1,800 jobs (-1.02%).

In the South, Florida and Texas led construction job growth with net increases of 3,200 (+0.57%) and 3,100 (+0.41%). Louisiana saw the largest net decrease, with a loss of 2,000 jobs, or -1.51% over the previous month.

Manufacturing jobs rose just 0.25% in December, climbing by 31,000 jobs. Jobs added over the last three months have been consistent, Sedlar stated, with 32,000 added in October and 41,000 in November. By region, the South again had the largest gains, with 22,800 jobs added, or + 0.55% over the previous month. 

Mining and logging jobs increased by 3,000 in December, or 0.50% over the previous month. For mining (minus support activities), the net increase was 1,300 jobs, and for logging, the net increase was 900 jobs.

Pandemic Influence Continues

While the Blue Collar Jobs Tracker indicates a slow rebound from pandemic lows, the lower than expected national job growth in January reflects the COVID-19’S ongoing influence. Sedlar believes the winter surge in coronavirus cases could further delay job recovery, including in the blue collar sector.

“The sooner everything is under control,” he stated, “the sooner we can see the blue collar jobs recovery resume.”

Information provided by the Center for Economic and Policy Research and edited by Becky Schultz.

State Construction Unemployment Rates End Poorly in 2020 [return to nav]

Dec 2020 State Construction Unemployment RatesDec 2020 State Construction Unemployment RatesAssociated Builders and ContractorsAs the nation struggles with the economic effects from the COVID-19 pandemic, construction employment continues to perform better than many other occupational groups, according to a state-by-state analysis of U.S. Bureau of Labor Statistics data released  by Associated Builders and Contractors. In December 2020, on a year-over-year basis, not seasonally adjusted construction unemployment rates rose nationally and in 48 states, and national NSA construction employment was down 125,000 from December 2019. However, national construction employment was only 3% below its pre-pandemic peak in February 2020 on a seasonally adjusted basis.

By comparison, overall nonfarm payroll employment was down 6.5% from its peak in February 2020. The combination of the pandemic and winter weather resulted in an increase in not seasonally adjusted construction unemployment rates for the nation and most states.

Dec 2020 State Construction Unemployment Rates Change from Feb 2020Dec 2020 State Construction Unemployment Rates Change from Feb 2020Associated Builders and Contractors

The national NSA construction unemployment rate went from 5.5% in February 2020 to 9.6% in December 2020, up 4.1%. Among the states, only Nebraska and West Virginia had lower estimated NSA construction unemployment rates over that same period.

From December 2019 to December 2020, the rate rose 4.6%, from 5% to 9.6%. Over that same period, only two states—Nebraska and South Dakota—had lower rates.

“With the distribution of vaccines, there is now a path to defeating COVID-19 and returning the economy and the construction industry to its pre-pandemic levels. The speed with which we enter a new normal depends on how fast these vaccines are delivered and how much of the population is vaccinated,” said Bernard M. Markstein, Ph.D., president and chief economist of Markstein Advisors, who conducted the analysis for ABC. “Federal spending to support the economy is also key. Spending on much-needed repairs to improve the nation’s infrastructure will benefit both the construction industry and the economy’s long-term growth prospects.”

Recent Month-to-Month Fluctuations

Because these industry-specific rates are not seasonally adjusted, national and state-level unemployment rates are best evaluated on a year-over-year basis. However, due to the uncertainty caused by the pandemic, month-to-month comparisons are useful.

The national NSA construction unemployment rate was up 2.3% from November 2020 to December 2020. Since the data series began in 2000, the historical pattern of change in rates from November has been an increase every year. Among the states, 45 had higher estimated construction unemployment rates than in November, four had lower rates, and one was unchanged (Montana).

The Top Five States

The states with the lowest December 2020 estimated NSA construction unemployment rates in order from lowest to highest were:

  1. Utah, 3.6%
  2. Nebraska, 3.7%
  3. North Carolina, 4.5%
  4. South Carolina, 4.9%
  5. South Dakota, 5%

All of these states except for South Dakota were in the top five in November 2020. Utah had the lowest rate in December and November.

The Bottom Five States

The states with the highest December 2020 estimated NSA construction unemployment rates in order from lowest to highest were:

  1. Alaska, 17.3%
  2. North Dakota, 17.5%
  3. Michigan, 17.8%
  4. Hawaii, 22.6%
  5. Rhode Island, 25.6%

Dec 2020 State Construction Unemployment RatesDec 2020 State Construction Unemployment RatesAssociated Builders and Contractors

Dec 2020 State Construction Unemployment RatesDec 2020 State Construction Unemployment RatesAssociated Builders and Contractors

All of these states were in the bottom five in November. Rhode Island had the highest estimated construction unemployment rate in December compared to second highest in November. This was the state’s second highest December rate on record, behind the 26.5% rate in December 2009.

Housing Lifts US Construction Spending to 4.7% 2020 Growth Over 3.0% Nonresidential Pandemic Slide [return to nav]

The U.S. Census Bureau issued its monthly construction spending report on February 1 detailing the value of construction put in place for December 2020. Total construction for the month was estimated at a seasonally adjusted annual rate of $1,490.4 billion, just 1.0% above the revised November estimate of $1,475.6 billion.

Despite the influence of the COVID-19 pandemic, the December 2020 figure was 5.7% above December 2019’s estimate of $1,410.3 billion. The value of construction in 2020 was $1,429.7 billion, 4.7% above the $1,365.1 billion spent in 2019, led largely by solid growth in the residential construction segment.Census 1

Private Construction

Spending on private construction was at a seasonally adjusted annual rate of $1,137.6 billion, 1.2% above the revised November estimate of $1,124.4 billion.

Residential construction came in at $691.0 billion in December, 3.1% (±1.3%) above the revised November estimate of $670.1 billion. New single-family construction saw gains of 5.8% for the month, with multi-family largely flat (+0.1%).

Nonresidential construction was at a seasonally adjusted annual rate of $446.6 billion in December, 1.7% below the revised November estimate of $454.4 billion.

  • Lodging (-6.4%) and manufacturing (-5.6%) posted the largest declines for the month.
  • A modest gain was seen in transportation (+2.2%), with most other sectors largely flat or with only slight declines.

The annual value of private construction for full year 2020 was $1,079.3 billion, 4.7% above the $1,030.7 billion spent in 2019.

Residential construction in 2020 came in at $607.6 billion, 11.6% above the 2019 figure of $544.4 billion. Single-family led with a gain of 7.9% with new multifamily construction coming in slightly behind at +6.3%.

Nonresidential construction was $471.7 billion, 3.0% below the $486.3 billion in 2019.

  • Public safety (-51.5%) and sewage and waste disposal (-45.8%) saw substantial declines but combined represent just $479 million of the total private construction market.
  • The largest gain was in another modest market segment, water supply (+36.9%), up from $352 million in 2019  to $$482 million in 2020.
  • Among the largest market segments, power saw an increase of 4.8%, rising from $107.1 billion in 2019 to $112.3 billion in 2020, while manufacturing fell 10.3% to $71.5 billion from $79.8 billion.

Public Construction

In December, the estimated seasonally adjusted annual rate of public construction spending was $352.8 billion, up just 0.5% from the revised November estimate of $351.1 billion.

  • Educational construction was at a seasonally adjusted annual rate of $90.2 billion, 0.6% above the revised November estimate of $89.7 billion.
  • Highway construction came in at $98.4 billion, 0.9% above the revised November estimate of $97.5 billion.
  • Office construction saw the largest decline for the month (-6.4%), followed by manufacturing (-5.6%) and health care (-3.0%).

The value of public construction in 2020 was $350.5 billion, 4.8% above the $334.4 billion spent in 2019.

  • Public safety experienced the largest growth from $10.3 billion to $14.9 billion (+44.5%), while water supply rose from $15.5 billion to $18.0 billion (+16.2%).
  • Among the largest public market segments, educational construction in 2020 rose to $87.3 billion, 3.6% above the 2019 figure of $84.3 billion and highway construction was $98.8 billion, an increase of 1.8% from $97.1 billion in 2019. 
National Nonresidential Construction Spending Declined 0.8% in December 2020 [return to nav]

National nonresidential construction spending declined 0.8% in December 2020, according to an Associated Builders and Contractors analysis of data published today by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $790.2 billion for the month, 4.8% lower than in December 2019 but 3.8% higher than in December 2018.

Spending fell on a monthly basis in nine of the 16 nonresidential subcategories. Private nonresidential spending was down 1.7%, while public nonresidential construction spending was up 0.5% in December.

“The slump in nonresidential construction spending has now persisted for several months,” said ABC Chief Economist Anirban Basu. “Leading indicators are not promising, including ABC’s Construction Backlog Indicator, which remains 1.5 months lower than in December 2019. The pandemic has ravaged commercial real estate fundamentals, and this sector will likely remain weak for years to come due to behavioral shifts caused by the COVID-19 pandemic. That weakness will limit the initial pace of private construction spending recovery in a number of key segments, even as the pandemic fades in the rearview mirror.

“Given weakened state and local government finances, public construction’s trajectory is not especially promising either,” said Basu. “Near-term spending growth is partially a reflection of what had been a strong economy pre-pandemic and the improvement in public finances that accompanied the lengthiest economic expansion in America’s history. Backlog was plentiful coming into the crisis, and that continues to be reflected in public spending data. Emergency construction spending has also boosted spending as decision-makers look to expand the capacity of healthcare delivery in the near-term.

“While it is true that the broader economy is poised for rapid economic recovery later this year, nonresidential construction is positioned to lag,” said Basu. “This is often the case given the tighter lending standards and the higher commercial vacancy rates that accompany periods of economic stress. However, the lag in industry recovery could be even lengthier this time around as the specter of remote work threatens the office market, online meeting platforms interfere with recovery in business travel, and more people shop from home as opposed to on Main Street and in malls. The implication is that absent a meaningful federal stimulus package, many nonresidential construction firms and their workers will face a period of vulnerability.”

US Recession Recovery Shows Signs of Stalling with Just 4.0% GDP and 3.0% Nonresidential Construction Growth in Q4 [return to nav]

The U.S. economy expanded at an annualized 4.0% rate in the fourth quarter of 2020 as the nation’s recovery from last spring’s economic devastation continued. Nonresidential investment in structures increased at a 3.0% annualized rate in the fourth quarter.

“Some observers may say that the economic recovery that began in May 2020 is neatly in place, but that is simply not true,” said ABC Chief Economist Anirban Basu. “After expanding 33.4% during the third quarter, the U.S. economy expanded only 4% during the fourth, an indication of an economy still beset by uncertainty and interruption.

“Economic momentum has been decelerating rapidly since the summer,” said Basu. “True, fourth quarter gross domestic product benefitted from factors including a surge in demand for durable goods as consumption patterns continued to shift from purchases of services to tangible items. This shift helped fuel purchases of equipment among manufacturers and supported rising exports.

“Other data indicate that the economy may now be shrinking,” said Basu. “As early as October, U.S. retail sales began to shrink. By December, the employment recovery had ended, with the nation losing an estimated 140,000 jobs that month. Key industries will continue to suffer, including airlines, cruise ships, movie theaters, sporting venues, restaurants, traditional retailers and theme parks, among others.

“The near-term outlook for nonresidential construction is not especially optimistic,” said Basu. “Investment in structures was up just 3% on an annualized basis during 2020’s final quarter after declining by 33.6% and 17.4% in the year’s second and third quarters, respectively. Leading indicators of commercial construction, including ABC’s Construction Backlog Indicator and Construction Confidence Index as well as the American Institute of Architects’ Architecture Billings Index, signal tougher times ahead for many contractors. Office, lodging and shopping center segments appear especially vulnerable. Many industry stakeholders and other Americans turn their eyes to Washington in the hope that a meaningful infrastructure package is forthcoming.”

Nonresidential Building Spending Expected to Decline Through 2021 [return to nav]

Slowing demand at architecture firms last year is expected to contribute to a projected 5.7% decline in construction spending for 2021, according to a new consensus forecast from The American Institute of Architects (AIA).

The AIA Consensus Construction Forecast Panel, comprised of leading economic forecasters, expects steep declines this year in construction spending on office buildings, hotels, and amusement and recreation centers. Health care and public safety are the only major sectors that are slated to produce gains in 2021.

Growth in nonresidential construction is expected for 2022, with three percent gains projected for the overall building market matched by both the commercial and institutional sectors. 

“The December jobs report confirmed that the economy needs additional support in order to move to a sustainable economic expansion,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “As pandemic concerns begin to wane and economic activity begins to pick up later in 2021, there is likely to be considerable pent-up demand for nonresidential space, leading to anticipated growth in construction spending in 2022.” 

Complete details on the latest Consensus Construction Forecast can be found on AIA’s website.

Construction Starts Weaker in December and Down 10% Year-over-year [return to nav]

Following a 2% decline in the previous month, total construction starts again fell in December, dipping 5% to a seasonally adjusted annual rate of $784.3 billion, according to Dodge Data & Analytics. Construction starts were lower in three of the four regions in December, with the South Central region the only one to post an increase.

“We saw declines in nonresidential buildings – they were down 11% through the course of the month – as well as in nonbuilding or infrastructure construction, which was down 5%,” reports Richard Branch, chief economist for Dodge Data & Analytics. “Residential construction starts in December were essentially flat; they were down by less than one full percentage point. Multifamily construction actually posted a fairly significant increase, but single-family construction starts fell back.”

Nonresidential construction fell 5% in December to a seasonally adjusted annual rate of $185.3 billion. Highways and bridges, environmental public works and miscellaneous nonbuilding starts all saw declines. However, the utility/gas plant category jumped 70% with the start of two large power generation facilities.

The largest nonbuilding project to break ground in the month included:

  • the $1.2 billion Traverse Wind Energy Center, a 999-MW wind facility spread across Blaine, Custer and Kingfisher Counties in Oklahoma
  • the $1.0 billion Three Rivers Natural Gas Power Generating Energy Center in Morris, IL
  • the $555 million West Lake Corridor Project, which is an 8-mile extension of the Northern Indiana Commuter District’s South Shore rail line in Dyer, IL

Construction Starts Dec 20 GraphThe nonresidential building sector moved 11% lower to a seasonally adjusted annual rate of $225.3 billion following a sizeable increase in November. Commercial starts fell 23% as office, hotel and warehouse starts all posted double-digit declines. Institutional starts fell 5%, while manufacturing starts rose 59%, thanks to the start of:

  • a $600 million Gulf Coast Ammonia Plant in Texas City, TX
  • the $341 million Orlando Health Jewett Orthopedic Hospital in Orlando, FL
  • the $325 million University of Massachusetts Education and Research Building in Worcester, MA

Following on the overall weakness for the month, the Dodge Index fell 5% to 166 (2000=100) from its 174 reading in November. For the full year, the Index averaged 163, a 10% decline from 2019.

Rough 2020 with Slow Recovery to Come

On a year-over-year basis, total construction starts fell 10% to $766.3 billion. “Not surprisingly, construction starts fell sharply over the course of the year. Total construction starts in 2020 were down 10% from 2019,” notes Branch. “The largest damage was in nonresidential buildings, which were down 24% from 2019. [We also saw] declines in the nonbuilding or infrastructure side of the market; they were down 14%. The one upside was, of course, in residential building construction, which rose 4% through the course of the calendar year [with] all of that on the single-family side of the market.”

Construction Starts Dec 20 ChartaNonbuilding starts fell to $181.5 billion, with significant pullbacks seen in the utility/gas plant category as well as in miscellaneous nonbuilding. Environmental public works starts dropped 5% in 2020, while the highway and bridge category saw an 8% increase in starts.

As noted, nonresidential building starts tumbled 24% to $239.9 billion — the lowest level since 2015. Commercial starts plummeted 26% year-over-year, with warehouse construction eking out a meager 1% gain in 2020. Institutional starts fell 13% last year, while manufacturing start dropped 59%.

 “The scars from the pandemic and recession will be long lasting and resulted in significant declines across most construction sectors,” Branch comments, adding, “Single-family housing, warehouse and highway and bridge starts were bright spots that cannot be understated for their gains.”

There will continue to be difficult months ahead for the economy and for construction starts as COVID-19 cases mount. However, Branch remains optimistic.

“As we move into 2021, we do expect that the economy will recover. It will move in lock step with the vaccine roll-out,” he states. “That will pull construction starts with it through the course of the calendar year. So, we are confident that we will start to see this market recover, although again it will be a long and slow road back to full recovery through the course of 2021 and beyond.”

Report: Infrastructure Investment Presents Opportunity to Energize U.S. Economy [return to nav]

Since 1998, America's infrastructure has earned consistent D-grade averages from the American Society of Civil Engineers (ASCE). These consistently low grades for our roads, bridges, waterways and more have put the United States economy in an unfortunate position.

The ASCE has released a new report, Failure to Act: Economic Impacts of Status Quo Investment Across Infrastructure Systems that examines the implications of low infrastructure grades for America’s economic future. The report focuses on the incremental and gradual decline of infrastructure systems under current investment scenarios and shows that the impacts to our nation’s economy are exacerbated over time as needed investments are deferred.

Conversely, findings show that the positive economic impacts of infrastructure investment reverberate through every sector of the economy. Reliable, modern infrastructure is the underpinning of economic growth across communities.

"When we fail to act on infrastructure, we continue to pay the price," Thomas Smith, executive director of ASCE said during the report release call. "Drivers get stuck in traffic, our systems are unreliable and the cost to do business all over the country increases and those costs get passed on to Americans."

The report indicates that total documented cumulative investment gap between projected needs and likely investment in these critical major infrastructure systems is more than $2.6 trillion by 2029, and more than $5.6 trillion by 2039. The long-term effects associated with infrastructure investments, long known to be a public safety issue, has a cascading impact on our nation’s economy, impacting business productivity, GDP, employment, personal income and international competitiveness.

Overall, if the investment gap is not addressed throughout the nation’s infrastructure sectors, by 2039 the economy is expected to lose more than $10.3 trillion in GDP. Losses are expected to include $2.4 trillion in exports, while imports into the U.S. economy will decrease by about $1.8 trillion, resulting in a $4 trillion loss of trade, and a further increase of $626 billion in our national trade deficit. As a result of this underperformance, job losses will mount annually, and in 2039, the U.S. economy is predicted to support 3 million fewer jobs than under baseline conditions. The report estimates that about 47% of the jobs lost in 2039 will be in high wage and high production jobs including manufacturing, finance, insurance and real estate, professional services and healthcare.

“America’s infrastructure bill is overdue, and we have been ignoring it for years,” said Smith. “There’s no better way to jumpstart the economy, while also lessening the financial burden on businesses and families, than by making a down payment on our infrastructure now – transit systems, bridges, water treatment plants and the grid -   to ensure these systems are sustainable, resilient and safe for communities across the nation.

Importantly, the report finds that if infrastructure investment continues at the current pace, American residents and businesses will suffer. The expected impact for every household in the U.S will be an average loss of more than $3,300 per year in disposable income through 2039. That's nearly $60,000 in money lost from evert family. 

Hope for Infrastructure Under Biden Administration

The most important finding of the report is that infrastructure deterioration is progressive, and the economic effects will dramatically escalate over time from a business as usual approach. The good news is that much of the economic declines from worsening infrastructure, particularly those forecast from 2030—2039, can be prevented with thoughtful investment programs that address documented deficiencies.

The Biden transition team has indicated they are ready to move on infrastructure very quickly and this leadership on a national level will ensure infrastructure funding will receive the support it needs to get something done, and hopefully quickly. 

“People are looking or ways to bring us together. Infrastructure has been an area where there is bipartisan support in terms of the problems, not so much the solutions but we’re working on that,” Earl Blumenauer, D-OR said during the report release call. “Infrastructure is a perfect place to reach across the aisle and engage people. We need to get more money in to the economy and get the legislation moving and I hope that's one of their first points of business.”

However we still need to deal with the financing, something the Trump Administration had failed to do. The 117th Congress will be faced with how to fund an infrastructure program that is sustainable for the future and the gas tax may no longer be a part of that system.

"We don't need to raise revenues quickly, but we need to have a plan that will raise money over the next several years," Blumenauer says. "This is an opportunity to recognize that the system we have now is slowly coming apart. Funding our surface transportation funding based on gallons of fuel consumed is on a downward spiral. We can't sustain that system. We have to move away from a gallons consumed model and get rid of the gas tax. A new plan will have a path that makes it clear we're going to eliminate it and replace it with something that is more fair and is sustainable. People hate it and we should commit the next 10 years to getting rid of it with something that is more fair."

Blumenauer says he would like to see an investment in our infrastructure of $2 trillion dollars that will assist every state and every community from the federal the investment. Since infrastructure touches every aspect of our lives, he says an infrastructure package needs to be wholistic and inclusive.

"Everything doesn't need to happen all at once," he says. "If people see there is an effective federal partnership where we are working together, we can craft something where everyone can benefit and everyone can get on board. Areas with less capacity would get a price break and areas that are causing the issues may pay a little more. Everyone benefits from a system that is fair and sustainable over time.

"There is an opportunity to do something that is broad and inclusive and gives people across the country, and in both parties, opportunities to engage. Infrastructure is a mechanism to bring us together and I hope we can take advantage of it."

The asphalt industry have been tireless advocates for the infrastructure funding our country so desperately needs, however there is a longterm cost to doing this and our Congress needs to be prepared to help move us forward. Without federal support, worsening conditions are likely to accelerate and our country can't afford to wait.

"We have a crisis we have to solve, this is a way to do that. We have to find people jobs and put them back to work. This is a way to do that. Infrastructure investment checks all the boxes to get the economy moving again," Smith concludes. 

U.S. Economy Loses 140,000 Jobs in December [return to nav]

America's job market recovery ground to a halt in December, losing a staggering 140,000 jobs, the Bureau of Labor Statistics reported Friday — a far worse outcome than economists predicted. 

At the same time, the unemployment rate remained flat at 6.7%, marking the first month that the rate hasn't improved in seven months. The weakness largely reflected job cuts at restaurants but  job losses in leisure and hospitality and in private education were partially offset by gains in professional and business services, retail trade and construction. Unemployment woes could extend into Joe Biden’s first months in office, with the President-elect already inheriting an economy that’s down almost 10 million jobs compared with before the pandemic.

Friday’s figures from the Labor Department suggest that employers have rehired roughly all the workers they can afford to after having laid off more than 22 million in the spring — the worst such loss on record. With consumer spending barely growing over the past few months, most companies have little incentive to hire. 

Construction however, added 51,000 jobs in December, but employment in the industry is 226,000 below the pre-pandemic levels held in February. In December, employment rose in residential specialty trade contractors (+14,000) and residential building (+9,000), two industries that have gained back the jobs lost in March and April. In December, employment also increased in nonresidential specialty trade contractors (+18,000) and in heavy and civil engineering construction (+15,000).

Future Outlook Uncertain

The pandemic will likely continue to weaken the economy through the winter and perhaps early spring. But many economists, along with the Federal Reserve’s policymakers, say they think that once the coronavirus vaccines are more widely distributed, a broad recovery should take hold in the second half of the year. The incoming Biden administration, along with a now fully Democratic-controlled House and Senate, is also expected to push rescue aid and spending measures that could accelerate growth.

The Democratic sweep of the Senate, which gives the party both the White House and Congress, paved the way for a swift implementation of President-elect Joe Biden's economic agenda, which will likely include more stimulus in the near-term. Biden also plans to pour dollars into the infrastructure and clean energy industries to create millions jobs in the medium and long-term. will continue to cover the changing labor market. 

AGC & SAGE Forecast COVID-19 to Shrink the 2021 Construction Market [return to nav]

The Associated General Contractors of America (AGC) and Sage Construction and Real forecast the COVID-19 pandemic to shrink construction demand, decrease new hires and increase cancelled or delayed production in 2021.

AGC and Sage conducted the 2021 Construction Outlook National Survey, which accumulated 1,329 responses, and discussed the results in a Facebook Live event with a panel of contractors on Thursday. The survey concluded that most companies anticipate declining demand for work in all construction categories excluding water and sewer, warehouse and other healthcare facilities (clinics, testing or screening, or medical labs).

AGC Chief Economist Ken Simonson forecasts the construction industry won’t return to pre-pandemic levels anytime soon. Of the survey participants, 59% of companies had to postpone production and 44% saw project cancellations, resulting in lost income in 2020.

Challenges to Recovery

As 2021 begins, construction project delays and cancellations continue. Already, 18% of survey participants have postponed projects that were scheduled to begin in the first half of the year, whereas 5% of companies have experienced production cancellations in 2021.

“Contractors expect the market for most types of construction to shrink in 2021, as the pandemic undermines the demand for projects,” Simonson said. “The net rating, the percentage of respondents that expect the available dollar value of projects to shrink compared to the percentage who expect it to expand, is negative in 13 of the 16 categories included in the survey.”

Companies in retail construction are the most pessimistic with a net rating of -64% . Lodging (-58%), private office (-58%) and higher education (-40%) categories all have similar concerns about the pandemic’s impact in 2021.

Continued production declines and cancellations have convinced most construction companies to forecast six or more months to regain pre-pandemic levels. And many companies have seen spending increase due to the pandemic’s impact.

According to Ranger Construction CEO Bob Schafer, these schedule interruptions stretched production time and added to contractors’ costs. Companies endured unanticipated costs for protective equipment, materials used for remote working capabilities, COVID-19 testing, paid time off due to COVID exposure and delayed production expenses. Those costs are now part of budgets.

“What we are seeing now is a lot of increases in cost. We are seeing significant material increases: steel, cement, liquid asphalt, aggregates all going up,” said Schafer.

With significant material cost increases and production expected to decline, relatively few companies plan to add workers in 2021. Simonson says the construction workforce lost a devastating 1.4 million jobs early in the pandemic.

Paycheck Protection Loans helped many companies bounce back and rehire. However, only 35% of companies plan on increasing headcount in 2021, while 24% anticipate decreasing their workforce throughout the year. During the Facebook Live, the three contractors all admitted to a shortage of skilled labor in their hiring processes.

COVID Propels Technology Adoption

In order to alleviate some impacts of the pandemic, many companies implemented technology to streamline production and reduce face-to-face communication.

Michael Kennedy, president of KAI Enterprises, reported that the company won many work projects via the online platform Zoom. KAI also integrated a new technology platform that allowed bankers and architects to see the jobsite, schedule and input photos — allowing production to continue virtually and at a safe distance.

All three contractors reported some resistance to integrating new technology, but Rosie Biondo, president of Mark One Electric, said the company had 90% success in the transition to its new purchasing platform.

Technology adoption comes with advantages and disadvantages. On one hand, most software helps companies streamline production; but overcoming new software’s learning curve sometimes presents efficiency challenges.

According to Dustin Anderson, vice president of Sage, resistance to new technology is common in any industry. However, it is important that companies invest in their people and promote engagement, which can lower resistance by making technology a benefit for them rather than a disadvantage.

Moving Forward

AGC and Sage forecast a challenging year ahead. However, adapting to the current environment and implementing of technology can help contractors survive. Construction is an essential part of the economy and therefore AGC plans to work with companies and the federal government to propel the construction industry further.

This includes securing a COVID relief package for companies affected by the pandemic and creating workforce campaigns that improve availability of skilled labor.

“In conclusion, I think we are going to have a challenging year, but you know, I am a contractor that has been in business for a long time,” said Biondo. “You can find work, it’s your job to find work. It is my job to make sure I work my team, so we dig in deep. We have cost-cutting measures in place and we find a way to continue to win.”

Key takeaways

  • Decreasing project demand
  • Increasing project cancellations and production delays
  • Higher material costs
  • Decreasing new hires
  • Technologies can streamline production and reduce face-to-face communication, alleviating some pandemic impacts

Steps to help contractors get through 2021

  • Align strategic plan with decreasing revenue
  • Communicate openly with banks and bonding companies — alleviate foreseen problems before they become issues
  • Plan to maintain company culture while working remotely
  • Strategize how to utilize PPE Relief the right way
  • Follow COVID-19 procedures and regulations
  • Report any injuries and COVID related illnesses
US Construction Spending Sets a Record in November Despite Nonresidential Shrinkage [return to nav]

U.S. Commerce Department data from November measured the value of total U.S. construction put in place rising 0.9% to a seasonally adjusted annualized rate of $1.459 trillion, the highest level since the government started tracking the series in 2002. The number was lifted by residential construction spending that soared on a 5.1% leap in single-family housing construction, as nonresidential construction spending fell 0.6%.Ten of the sixteen nonresidential construction subcategories saw decreased spending in November, with notable drops in the power construction, commercial and an 8.7% plunge in lodging construction.Ten of the sixteen nonresidential construction subcategories saw decreased spending in November, with notable drops in the power construction, commercial and an 8.7% plunge in lodging construction.

“Private nonresidential construction declined for the fifth-straight month in November, while public nonresidential spending slipped for the fifth time in the past six months,” said Ken Simonson, the association’s chief economist. “Unfortunately, our latest survey finds contractors expect the volume of projects available to bid on in 2021 will be even more meager.”

Meanest nonresidential hits

On a seasonally adjusted annualized basis, nonresidential construction spending totaled $792.5 billion, down 0.6%, for the month. Ten of the sixteen nonresidential subcategories saw decreased spending, with notable drops in the power construction (currently the largest subcategory), commercial construction and an 8.7% plunge in lodging construction.

Through the first 11 months of 2020, spending on lodging construction is down 13.6%. Much larger categories have shown dramatic drops, such as manufacturing’s 9.2% plummet, office down 4.3% and educational construction down 4.3%.

Private nonresidential spending fell 0.8% in November, and is down 2.4% year-to-date. Public nonresidential spending fell 0.2% for the month, and has grown 4.7% year-to-date compared to the first 11 months of 2019.

“Typically, spending patterns in nonresidential construction lag behind those of the overall economy by 12 to 18 months,” said Associated Builders and Contractors Chief Economist Anirban Basu. “But the pandemic-induced downturn of 2020 was so abrupt and created such massive issues for developers, state and local governments, and others who purchase construction services that the impact on nonresidential construction was virtually immediate.

“The single hardest-hit segment of the industry is lodging. While leisure travel is likely to rebound as more Americans are vaccinated, business travel may take years to recover. This bodes poorly for the construction of hotels with elaborate meeting spaces located in central business districts or close to airports.

“The near-term nonresidential construction spending outlook is generally not positive,” said Basu. “While there will be certain construction segments that remain active, including data centers, fulfillment centers and certain healthcare facilities, commercial construction is positioned to be weak for the next several quarters. This is reflected in ABC’s Construction Backlog Indicator, which in November reached its lowest level since the beginning of 2011.

“Many public segments have also experienced declines in spending in recent months. The good news is that public construction may receive a substantial boost from post-inauguration stimulus. Infrastructure investment often produces additional opportunities for profitable private development. Suburban commercial developers may also take heart in America’s ongoing residential construction boom, with residential construction spending up more than 16% on a year-over-year basis, as interest in homeownership surges.”

Sources of housing strength

Monthly residential-spending gains are largely attributed to the strong growth of spending on single-family and improvements. Single-family construction spending rose to a $341.5 billion annual pace in November, up by 5.1%. This is in line with the strong readings of single-family housing starts and solid builder confidence. Remodeling spending inched up by 0.2% in November. Meanwhile, multifamily construction spending stayed flat after reaching a record high in October, and was 15.8% higher since a year ago.        

Single-family Housing Continues to Thrive During Pandemic as Multifamily, Commercial Construction Struggle [return to nav]

While the pandemic may have slowed down many sectors of the economy, the residential housing market has held strong and will continue to thrive in 2021, post-pandemic.

That’s the assessment of a leading TD Bank economist who recently provided an economic forecast for construction professionals, part of a Fall webinar series hosted by BCA Insurance Group and Avrio Solutions, which specialize, respectively, in insurance/bonding and accounting services for contractors. Pent-up demand during the shutdown along with historically low interest rates were the prime movers in the uptick in single-family homes.

That demand hasn’t carried over to multi-family dwellings, such as apartment complexes, noted Admir Kolaj, who’s been with TD since 2013 and whose analyses are frequently quoted in the financial press. Since the pandemic began, single-family starts are up around 13% from the pre-pandemic peak, while multifamily starts are down about 40% from their pre-pandemic peak. He attributed this in part to the virus-fueled but continuing migration of people from city living to the more socially distanced-friendly environs of the suburbs. Existing homes have also fared well, with low inventory helping to prop up prices.

“Fast-rising prices and low inventory are generally good signs for home builders, and those focused on the single-family market are feeling very confident,” said Lawrence D. Cohen, executive vice president of BCA Insurance Group. “Sales should hold steady for the first half of 2021, and the number of prospective buyers will continue to outpace the number of homes available during that time period, even as multifamily construction continues to stagnate.”

The BCA Insurance/Avrio Solutions webinar on December 1, 2020, highlighted several other economic trends relevant to builders:

  • Commercial project starts will continue to struggle under the weight of the pandemic. Enforced closures and consumers shopping much more online have contributed to increased vacancies in retail. Office vacancies have risen, too, as more people work from home during COVID-19, a trend that will likely continue even after the pandemic ends.
  • Gross Domestic Product is down and will take time to rebound. GDP, a key indicator of economic vitality, was actually better through the third quarter of 2020 than anyone had reason to expect, but it will take time before that metric returns to a pre-pandemic level. Kolaj pointed out that the 10% drop in GDP in the first half of last year portends a giant hole from which the economy will need to dig out. The distribution of COVID-19 vaccines represents a light at the end of the tunnel, and GDP could grow by 4% or 5% depending on whether Congress passes additional economic relief packages.
  • Elections have consequences, in this case good ones. While the makeup of the Senate remains undecided, President Biden can take executive action on trade, immigration and environmental regulations that will have positive long-term effects on GDP and, as a result, lead to more economic growth and a net positive on housing and construction. Further, if a friendly Congress implements his economic agenda, $2 trillion earmarked for public projects would get off the ground over the next 10 years, a shot in the arm for clean energy and infrastructure projects.
  • Home buyer tax credit could further accelerate new home starts. The new administration plans a first-time home buyer tax credit of $15,000. This will make home buying more affordable, as it can significantly help with down payments, and that will be a further boon to the housing market.
  • Low interest rates are here to stay - for a while. Exceptionally low rates can help builders directly and indirectly. For companies that carry debt or leverage debt to finance their operations, lower rates cut down on their costs and boost profit margin. Low rates help out other areas of the economy, as well; home buyers, for example, can keep single-family builders thriving, and home owners can renovate to add more space for working at home.
  • The insurance market is experiencing a generational tightening. Cohen notes that there have been significant increases in premiums in certain areas like auto coverage and excess liability. Contractors need to be mindful of these cost increases when bidding on jobs.
  • Borrowing might not always be the right choice. With interest rates so low, construction company owners might be tempted to invest in new equipment to take advantage of the rates and diminish their tax bill. But Steve Beppel, CPA and founder of Avrio Solutions, cautions against making snap decisions. “Borrowing to finance equipment that’s not going to be used much might not make sense, and will certainly outweigh potential tax benefits,” he says. “It can be a balancing act, so you should consult your trusted professional to figure out what’s right for your business.” 
Expanding Construction Employment Masks Waning Economic Momentum [return to nav]

The construction industry added 27,000 net new jobs in November, according to an Associated Builders and Contractors analysis of data from the U.S. Bureau of Labor Statistics. During the last seven months, the industry has added 804,000 jobs, recovering 74% of the losses incurred during earlier stages of the pandemic.

“The construction industry recovered a bit in November, but the future is far from certain for the industry,” said Ken Simonson, chief economist with the Associated General Contractors of America. “The nonresidential building and infrastructure segments are likely to shed jobs again amid an increase in coronavirus case counts unless Congress acts quickly to provide needed relief.”

Construction employment climbed to 7,360,000 in November, an increase of 0.4% compared to October. However, employment in the sector remains down by 279,000 or 3.7% since the most recent peak in February. The pandemic initially triggered widespread project cancellations and interruptions that resulted in the loss of 1.1 million construction jobs in March and April.

The disparity between residential and nonresidential construction widened in November, Simonson noted. Residential building and specialty trade contractors added 15,4000 jobs in November and have now recouped 96% of the employment losses they incurred in March and April. In contrast, nonresidential construction employment—comprising nonresidential building, specialty trades, and heavy and civil engineering construction—increased by only 11,900 jobs in November and has recovered only 56% of the jobs lost in March and April.

Heavy and civil engineering experienced the largest nonresidential-construction-jobs increase, adding 9,500 positions on net. Nonresidential building added 3,600 jobs, while the number of nonresidential specialty trade contractors declined by 1,200 positions on net.

The construction unemployment rate rose to 7.3% in November, up 2.9 percentage points compared to the same period a year ago. Unemployment across all industries dropped from 6.9% in October to 6.7% last month.

“The economic momentum that began in May continues to wane,” said ABC Chief Economist Anirban Basu. “While it is true that unemployment declined nationally, this result was largely driven by a decline in labor force participation. America’s labor force has 4 million fewer workers than in February. Based simply on momentum, it is quite likely that one or more of the next three jobs reports will indicate a loss of employment.

“Given that context, the performance of nonresidential construction is rather impressive,” said Basu. “The industry faces numerous headwinds, including weaker state and local government budgets, tighter project financing conditions, compromised commercial real estate fundamentals, supply chain disruptions and project postponements and cancellations. Nonetheless, the nonresidential construction segment has remained a bulwark of relative stability throughout the crisis. It is a point that contractors and industry organizations should highlight as they strive to attract more young people into the construction trades.

“That said, the most challenging periods for the industry likely lie in front of it,” said Basu. “It is normal for nonresidential construction activity to hold up well during the early stages of an economic downturn and then experience a decline in fortunes thereafter. ABC’s most recent Construction Backlog Indicator survey shows that many contractors have sustained significant declines in backlog over the course of the year. Anecdotal information suggests that bidding opportunities for new projects have become scarcer and competition for the next generation of jobs fiercer. ABC’s Construction Confidence Indicator shows that the average contractor expects profit margins to dip over the next six months. If the U.S. economy continues to weaken into and through the winter, that will further postpone the nonresidential segment’s complete recovery.”Nov 2020 Construction Employment2

Robust New Orders, Backlogs Expected to Boost Homebuilding Growth [return to nav]

The outlook for the U.S. homebuilding sector has been revised to positive from stable, Moody's Investors Service says in its 2021 outlook report. After slowing during the second quarter of 2020 as the pandemic took hold, demand picked up during third quarter and will remain robust in the new year, boosting homebuilders' revenue and profitability.

"The positive outlook for the US homebuilding sector reflects expected revenue growth of 10% to 12% in 2021, along with gross margins of 20% to 21%," said Natalia Gluschuk, Moody's analyst. "The homebuilding sector will continue to vastly outperform the broader US economy in 2021, given favorable fundamentals and increased emphasis on home ownership."

Inventories of both new and existing homes are low as a result of strong demand and construction constraints in 2020, which supports homebuilders' pricing power and bodes well for their gross margins, Gluschuk says. Housing starts and new home sales remain at or below long-term averages, indicating a lack of excess supply, especially given population growth. At the same time, low interest rates will continue to drive demand and support affordability.

In addition, large swaths of the population are now spending significantly more time at home due to remote working arrangements implemented to curb the spread of Covid-19, which also drives demand for homes. Increased remote work will continue to encourage homeownership in areas further from city centers and employment locations.

During the third quarter new housing orders were up on average 50% and backlogs were up nearly 40% over a year ago, with demand continuing to remain solid in the fourth quarter, Moody's says. However, modest production constraints are expected in 2021 including a short supply of developed lots, longer land permitting processes, and interruptions of building materials and labor availability. These factors will lengthen construction times and limit revenue growth.

US Nonresidential Construction Spending Flat in October [return to nav]

The total value of U.S. construction put in place in October rose 1.3% despite ongoing weakness in nonresidential spending, according to U.S. Census Bureau data. Nonresidential construction spending broke a four-month string of declines by managing to remain flat in October, growing year-to-date just 0.7% growth, compared to the same period in 2019.

Residential construction spending, on the other hand grew 2.9% in October and is up 9.6% year-to-date.Oct Us Construction Spending Segments

Nine of the sixteen nonresidential construction subcategories were down for the month (including the massive power, commercial and office sectors) and seven are down year-to-date (including educational, office, and manufacturing construction). Private nonresidential spending fell 0.7%, while public nonresidential construction spending was up 1.0% in October.

“Excluding some of the emergency construction, such as temporary expansions to healthcare capacity, that transpired in October due to increasing cases of COVID-19, nonresidential construction spending actually declined for the month,” said ABC Chief Economist Anirban Basu. “Spending weakness was broad-based but was especially apparent in private construction segments, such as lodging, office and power.

Private nonresidential spending slipped 0.7% in October, with declines in nine of 11 sectors. Public nonresidential construction is performing about as you expect in an election year, rising 1.0% for the month with notable growth in highway and street, educational and transportation sectors.

“The October spending report shows private nonresidential construction is continuing to slide,” said Ken Simonson, chief economist with the Associated General Contractors of America. “Public construction spending has fluctuated in recent months but both types of nonresidential spending have fallen significantly from recent peaks this year and appear to be heading even lower.”

“Commercial and institutional backlog is down 1.7 months since the beginning of the pandemic, according to ABC’s Construction Backlog Indicator, suggesting that declining commercial activity will eventually become apparent within the spending data,” said Basu.

“The near-term outlook is tilted toward the negative as the economic momentum that has been apparent since May begins to wane. A near-term recession is possible, and perhaps even probable, as shutdown measures are renewed and the impact of previously implemented stimuli continues to fade. That will further delay the recovery of construction spending.

“The longer-term outlook is decidedly more upbeat,” said Basu. “At some point, there will likely be a combination of additional stimuli (including money for infrastructure) and widespread vaccine availability. As air travel, restaurants and theaters begin to rebound, the recovery to come may be more impressive than the recovery that has occurred over the past six months. That should set the stage for better nonresidential construction spending dynamics in 2022 and 2023.”

Spending on new single-family residential continues to pull the U.S. construction train, jumping 5.6% in October and up 5.0% year-to-date.

“The COVID-induced race for space and low mortgage rates continue to bolster residential spending,” said Mark Vitner, senior economist with the Wells Fargo Economics Group.

 Outlays for multifamily projects rose 1.2%, as apartment construction holds up reasonably despite rising rental vacancy rates.Oct Us Constr Spend

October Single-family US Housing Starts Grew the Fastest Since Before the Great Recession [return to nav]

Us Housing Starts Permits 102020Single-family housing starts rose for the sixth consecutive month in October, jumping 6.4% to a 1.179-million-unit seasonally adjusted annual rate. It was the fastest pace of single-family starts growth since the spring of 2007. Year-to-date single-family production is 8.6% ahead of the same period in 2019, and total housing starts are 6.7% ahead of last year’s pace.

Total U.S. housing starts climbed 4.9% in October, following an upwardly revised 6.3% increase in September. Single-family starts accounted for all of October’s increase, as multifamily starts fell 3.2%.

Permits issued for all types of new homes occurred at a seasonally-adjusted annual rate of 1.545 million in October, unchanged from September.

Builder confidence surges with single-family

Us Regional Housing Starts 102020The surge in single-family starts this fall coincides with record high builder confidence, reflecting exceptionally strong sales and extraordinarily low inventories. Much of the increase is in the South and West, which are largely comprised of auto-dependent economies, and have held up better during the pandemic. The South and inland and mountain regions of the West are seeing a huge influx of residents from large metro areas on the West Coast. Data from the postal service on address changes and LinkedIn show an accelerated outflow from New York, Los Angeles, San Francisco, Seattle and Portland since the onset of the pandemic.

Phoenix, Salt Lake City, Dallas, Austin, Charlotte, Tampa, Nashville and Jacksonville have been among the fastest growing markets on the receiving end. Just over 80% of all single-family homes built over the past year have been in South or West, which means that construction can continue at a much higher pace during the winter months than in prior years.

But don’t miss a 22% October increase in single-family starts in the Midwest.

Has multifamily leveled off?

The move to suburban markets is not limited to single-family homes.

“Data on asking rents suggests there has been a clear shift in renter preferences away from urban/lifestyle apartments for suburban apartments that offer more outdoor amenities,” says Mark Vitner, senior economist with the Wells Fargo Economics Group. “The bulk of apartment construction this past decade has been urban/lifestyle apartments and rents are falling in most major markets that had seen a boom in high-rise development this past decade.”

Development is now pivoting toward the suburbs, but overall starts have still pulled back in a major way since the start of the year.

Multifamily starts, the bulk of which are apartments, have been unchanged since August at 351,000 units. Multifamily starts may level off near their current level. There is still an immense undersupply of all types of housing, particularly affordable rental housing.

“Weakness for multifamily development is consistent with our forecast, as multifamily permits for 5+ unit production are now down more than 11% on a year-to-date basis,” says Robert Dietz, chief economist with the National Association of Home Builders. “The year 2021 will see a decline for multifamily starts, although there will be strength for low-rise multifamily development.”Us Housing Starts History 102020

Industry Gaining Hope for Infrastructure Legislation Under Biden [return to nav]

While many in the construction are worried about what a Biden presidency might mean for our industry long term, there is reason to be hopeful that the career politician may be able to get more done in Washington during his presidency than President Trump was able to do. Hope for a substantial investment in our nation's infrastructure is one of those things that are showing promise. 

After four years of empty promises from President Trump, House Committee on Transportation and Infrastructure Chair Peter DeFazio (D-OR), says he looks forward to a real ‘Infrastructure Week’ under a Biden administration

“Despite all his talking and tweeting about investing in our Nation’s crumbling infrastructure, President Donald Trump’s most significant contribution to the conversation on infrastructure was turning "Infrastructure Week" into a running joke," DeFazio said in a statement. "As a result, the American people got four years of worsening congestion, increased carbon pollution and further decline in the state of our roads, bridges, public transit and more."

Earlier this year, DeFazio wrote a transformational bill that he says would move our infrastructure out of the 1950s and into the modern era. The bill passed the House with bipartisan support this summer, but then, like so many other critical House-passed bills, the Moving Forward Act did not progress in the Senate.

“That all changes under a Biden administration," DeFazio says. "The President-elect has made it clear he is ready to work with Congress to deliver results for all Americans with bold investments in infrastructure that help everyone, from large metro areas dealing with unreliable transit and soon to be jam-packed highways, to rural communities that suffer from bridges in poor condition and deteriorating roads. President-elect Biden plans to ‘Build Back Better,’ and that’s exactly what our Nation needs to move our infrastructure into the 21st century while creating millions of family wage jobs, supporting U.S. manufacturing, and harnessing American engineering and ingenuity. I can’t wait to get started.”

The Biden campaign has said, “We’ve seen the need for a more resilient economy for the long-term, and that means investing in a modern, sustainable infrastructure and sustainable engines of growth — from roads and bridges, to energy grids and schools, to universal broadband.”

However, the construction industry is still worried what this will all mean for them, especially if Biden includes "green" polices in his funding package. 

Regulatory Changes Still Worry the Construction Industry

Also of concern for the industry is the potential change to regulatory reform. Under President Trump, reduced regulatory burdens sought to streamline many environmental review processes which would speed up construction projects.

According to the Trump Administration, their approach to Federal regulation reform will have raised real incomes by an estimated $3,100 per household per year. Of this total, 20 notable Trump Administration deregulatory actions alone were projected to save American consumers and businesses about $220 billion per year.

Biden has said that he would immediately put regulations back in place during his time in office which has many in the industry concerned. When the President-elect announced his Build Back Better plan, he promised to reverse those roll backs in order to protect citizens and our environment, prompting concern in the construction industry.

"The regulatory environment will change meaningfully under a Biden presidency," Anirban Basu, chairman and CEO at the Sage Policy Group says. "Among the most impacted industries will be oil, natural gas and coal.  Firms in these segments are likely to face a more expensive regulatory framework, ultimately translated into less output than there would have been under a second Trump term.  That will impact related construction."

Big Gain in September Residential Construction Spending Offsets Nonresidential Drop [return to nav]

Total construction spending edged up 0.3% in September – the fourth consecutive monthly gain in the value of U.S. construction put in place. All of the recent strength has been concentrated in the residential sector, according to data published today by the U.S. Census Bureau.Sep Construction Spending Segments

Residential spending climbed 2.7% during September and is up 8.1% year to date. Record low mortgage rates and shifting preferences for more space has fueled a rapid recovery in new single-family construction, which rose 5.7% during the month. Typically volatile multifamily construction spending leapt 13.1%.

Nonresidential construction spending declined 1.6% during the month, the sector’s fourth consecutive drop. Five of the six largest nonresidential construction categories – power, educational, highway and street, and office – dropped by 5% to 9% in September.

“Sluggish demand for commercial space and heightened economic uncertainty continues to weigh heavily on most commercial and institutional construction,” said Mark Vitner, senior economist with the Wells Fargo Economics Group.

Public expenditures also weakened during the month, falling 1.7%. Highway and street outlays dropped 5.4%. A 2.0% upturn in educational construction arose as schools prepared for the return of students.

“The pace is of decline in nonresidential construction spending is accelerating,” said Associated Builders and Contractors Chief Economist Anirban Basu. “This is precisely what had been predicted. Coming into the crisis, the economy was rolling, helping to lift construction backlog amid elevated developer confidence, according to ABC’s Construction Backlog Indicator and Construction Confidence Index. The crisis shattered that equilibrium, producing distressed commercial real estate fundamentals, diminished confidence, postponed and cancelled projects, the embrace of remote work, tighter credit conditions and damaged state and local government finances.

“Though the initial phase of economic recovery has been brisk, economic outcomes are likely to deteriorate markedly during the months ahead absent further stimulus.

“The hope is that policymakers in Washington, D.C., will soon see fit to deliver on a long-awaited infrastructure financing and spending program,” said Basu. “Not only would that accelerate the broader economy’s economic recovery, a well-executed infrastructure package would make American workers more productive, unleash new private development opportunities and allow America to better compete in the global marketplace. The longer America has to wait for such a package, however, the more vulnerable its citizens will be to further economic dislocations.”Sep Construction Spending History

U.S. Total Industrial Production [return to nav]
  • US Industrial Production during the three months through November was down 5.9% compared to the same period one year ago.
  • Expect US Industrial Production to continue rising during the coming quarters.

Us Industrial Production

U.S. Leading Indicator [return to nav]

  • The Conference Board’s US Leading Indicator rose in November.
  • 2021 industrial sector rise is suggested by rise in this and numerous other leading indicators, including the US ISM PMI (Purchasing Managers Index) and US Total Industry Utilization Rate.

Us Leading Indindicator

U.S. Private Nonresidential New Construction [return to nav]
  • US Private Nonresidential New Construction during the three months through October totaled $120.2 billion, down 7.1% from the same period one year ago.
  • Construction typically lags the US industrial economy by approximately one year. We expect the COVID-19 pandemic and related shutdowns to impact Construction in 2021, driving decline in this sector throughout the year. 

Us Private Nonresidential New

Construction Machinery, New Orders [return to nav]
  • US Construction Machinery New Orders during the 12 months through October were 9.1% below the year-ago level.
  • In the most recent elections, voters approved a record 94% of state and local ballot initiatives for transportation improvements, amounting to an overall countrywide commitment of $14 billion. This bodes well for construction in the coming years, and thus for cyclical rise in New Orders.

Us Construction Machinery New Orders

U.S. Total Public New Construction [return to nav]
  • US Total Public New Construction during the 12 months through October totaled $347.7 billion, up 5.5% from one year ago. The annual growth rate is generally declining from a March 2020 peak of 8.6%.
  • Decline in the US Institutional Architecture Billings Index suggests Construction will move along the back side of the business cycle in the coming quarters.

Us Total Public New Construction

U.S. Heavy-Duty Truck Production [return to nav]
  • US Heavy-Duty Truck Production during the 12 months through November was down 39.0% from one year ago.
  • Rising quarterly US Surface Trade with Canada and Mexico, and rise in the US Business Confidence Index, suggests Production will begin recovering in the first half of 2021. 
Us Heavy Duty Trucks

Blue Collar Job Growth Continues at Slow Pace Amid Uneven Economic Recovery [return to nav]

Employment in the blue collar sectors of construction, manufacturing, and mining and logging increased in August by 45,000, or 0.23% over the previous month. But we are, “nowhere close to making up” the deep job losses of April, said Matt Sedlar, data analyst for the Center for Economic and Policy Research (CEPR), in the latest Blue Collar Jobs Tracker.

Construction jobs increased by 17,000 or 0.24% over the previous month, Sedlar reports. The three-month average from June to August was 69,000 jobs, or on average a 0.98% change from month to month.

“It’s worth reminding that the sector lost over a million jobs just in April. We’re nowhere close to making up that gap,” he commented. “Last month, we noted that construction job growth was concentrated in some parts of the US, particularly the Northeast. In August, that shifted to the West, which saw an increase in 13,500 jobs or 0.72% over the previous month. The Northeast gained 8,800 jobs, or 0.86% over the previous month, followed by the Midwest with 4,500 (+0.33%), and the South with 2,000 (+0.07%). "

Manufacturing jobs increased in August by 36,000, or 0.30% over the previous month. By region, the Midwest experienced the largest increase in manufacturing jobs, with a net change of 26,300 or 0.69% over the previous month. 

"There is a statistically significant difference in the average growth of manufacturing jobs by region, suggesting that the biggest month-to-month growth may be concentrated in one part of the US. But more data points are necessary to determine if that's the case," said Sedlar.

This table offers a deeper look into the states with the highest net changes in manufacturing jobs in August.

Blue Collar JobsCenter for Economic and Policy ResearchThe report shows that mining and logging jobs decreased in August by 8,000 or -1.29% over the previous month. The three-month average from June to August was -7,000 jobs or a -1.12% month-to-month change. Employment in mining and logging has decreased by 119,000 jobs over the last 12 months (-16.28% over the previous 12 months), and by 43,000 jobs since President Trump took office.

“This report is similar to the last couple of reports in the sense that there is growth but it is slow and uneven,” Sedlar noted. “Blue collar sectors such as manufacturing and mining and logging were already in trouble even before the pandemic started. It’s hard to imagine the situation improving any time soon for these workers and industries.”

Blue Collar Jobs Tracker is a project of the Center for Economic and Policy Research (CEPR) created to take a closer look at the path of job growth in four major blue collar industries: manufacturing, mining, construction, and logging. 

Information provided by the Center for Economic and Policy Research and edited for content and clarity by Becky Schultz.

Residential Lifts August Construction Spending Over Declining Nonresidential Outlays [return to nav]

Divergence between strengthening August 2020 Us Construction Segment Spendingresidential construction activity and weakening commercial construction began to crystalize in August. Overall construction spending rose 1.4% during the month, an outcome fueled almost entirely by a 5.5% jump in single-family residential spending.

Even with a 0.1% slip in spending on multifamily housing construction, August delivered the third consecutive monthly gain in residential outlays, and residential construction spending has risen at a 6.0% annual rate over the past three months.

“The recent rise of single-family activity is owed to a confluence of factors, including near record-low mortgage rates, a ready-and-waiting wave of first-time home buyers and a shift in preferences for more livable space in order to adapt to spending more time at home,” says Mark Vitner, senior economist with the Wells Fargo Economics Group.

The effects of the COVID-19 crisis have been readily apparent on the nonresidential side for some time. Nonresidential construction spending slid 0.1% in August. Office spending fell 1.0%, as uncertainty about the long-term space needs of office tenants remains top of mind for developers and lenders.

Lodging slipped 0.4% on a monthly basis and is down 9.4% year to date. Hotel occupancy rates have improved since the spring, but remain severely depressed. Nationally, the occupancy rate sat at 46.8% for the week ending September 26, much lower than the 71.0% of the same week last year, according to Wells Fargo.

"The e-commerce boom should bolster warehousing and distribution center construction for years to come,” says Vitner. “Similarly, more time spent in virtual settings has led businesses to improve digital access and quickly expand IT infrastructures, which has driven-up demand for data centers.”Consumers’ social-distancing-accelerated transition to online shopping has weighed heavily on what was already a weak trend in retail development. Wells Fargo Economics reports construction outlays for retail projects are now down 17.8% on a year-over-year basis. The massive shopping shift continues to support new warehouse construction, which is up almost 16% year-over-year.

Facebook recently started work on a $1 billion data center in Tennessee, which was one of the largest nonresidential building projects started in August according to Dodge Data & Analytics.

Private nonresidential construction spending contracted by 0.3% from July to August, with decreases in nine out of 11 categories. The two largest private nonresidential segments, power construction and commercial construction—comprising retail, warehouse and farm structures—each shrank by 1.1%. Among other large segments, manufacturing construction rose 2.2% and office construction slipped 0.3%.

Public nonresidential spending fared slightly better during the month, rising 0.2%. Total public expenditures increased 0.1%, as state and local spending rose 0.7%, while federal outlays dropped 5.7%.

“The good news is that nonresidential construction spending momentum remains apparent in a number of public segments,” says Associated Builders and Contractors’ Chief Economist Anirban Basu. “On a monthly basis, construction spending was up in the water supply (+1.8%), highway/street (+1.9%) and educational (0.6%) categories. Spending in the public safety segment is up nearly 40% compared to the same time last year.

“Absent an infrastructure-oriented stimulus package, the likely trajectory of nonresidential construction spending does not appear especially bright,” Basu adds. “Commercial real estate fundamentals are poor, with elevated vacancy rates and tighter lending conditions, rendering it probable that private nonresidential construction spending will continue to dip. State and local finances have been pummeled by the pandemic, resulting in less support for the next generation of public projects. Many contractors report declining backlog, according to ABC’s Construction Backlog Indicator, and fewer opportunities to bid on new projects. With winter coming and infection rates poised to rise, the quarters to come are shaping up to be challenging ones.”

“The August spending report shows a stark divide between housing and nonresidential markets that appears likely to widen over the coming months,” said Ken Simonson, the Associated General Contractors' chief economist. “With steadily rising business closures and worker layoffs, and growing budget gaps for state and local governments, project cancellations are likely to mount and new starts will dwindle.”

August 2020 Us Construction Spending Public Private

US Housing Starts Soar in June but Covid Resurgence Threatens Progress [return to nav]

Total U.S. housing construction starts rose 17.3% in June, with both single-family and multifamily starts rising to their highest level since March. Starts more than doubled in the Northeast, as builders finally got back on track following a three-month lull. Activity also rebounded in the Midwest, with overall starts rising 29.3%. In the South, which accounts for over half the nation’s overall starts, activity rose 20.2%.June2020 Regional Us Housing Starts

The only regional decline was in the West, where starts fell 7.5%. But that was after leaping 69.8% in May.

Monthly estimates of housing activity issued by the Commerce Department on Friday showed that new homes were started at a seasonally adjusted annual rate of 1,186,000 in June after modest recovery in May followed steep declines in April and March. After a second month of increases, and an upward revision for May, residential construction starts year to date are 0.7% above the same period in 2019.

Applications for building permits, a good indication of future activity, rose 2.1% to 1.24 million units.

An Associated Press story on reports there were hopes that the lowest mortgage rates in five decades would drive a housing boom. However, surging Covid-19 infections in the South, typically one of the most active construction markets, has put new projects at risk.

“We look for strong demand, improved homebuilder confidence, and an ongoing shortage of supply to support growth in housing starts over the rest of the year, but downside risks are increasing due to the resurgence in Covid-19 cases,” said Nancy Vanden Houten, lead U.S. financial economist at Oxford Economics. The South and West, which are seeing the largest rise in cases, accounted for about 75% of June housing starts, she said.

“While both single and multifamily starts rose solidly in June, we believe that apartment construction is set to slow,” said Mark Vitner, senior economist with Wells Fargo Economics. He points out that permits issued for multifamily projects fell 13.4% in June and are only slightly above their April low. “Moreover, credit underwriting for new apartment projects has tightened, particularly in higher cost areas that are already slated to see an onslaught of new units.

“Apartment starts are not headed to oblivion, however. Activity is actually picking up in many suburban markets in the Sunbelt. On a year-to-date basis, multifamily starts are up 5.2% from the first six months of last year. Permits for future projects, however, are down 6.9% for the same period.”

Meanwhile, the average 30-year fixed mortgage fell to 2.98% in the week through Thursday, reports That's the lowest reading in Freddie Mac’s 50 years of tabulating the data.

This represents the third consecutive week, and the seventh week this year, that the rate on the most popular U.S. home loan has hit a record low. It reflects the plunge in bond yields amid the coronavirus pandemic and the Federal Reserve’s reduction of the federal funds rate to a minuscule zero to 0.25%.

“Momentum is clearly swinging back toward single-family homes,” said Vitner. “The recent drop in conventional mortgage rates below 3% should bring out even more buyers, bolstering builder confidence even further. Homebuilder confidence, which was reported yesterday, had already rebounded before the latest drop in mortgage rates.”

The National Association of Homebuilders/Wells Fargo Housing Market Index (HMI) jumped 14 points in July to 72. The increase was driven by a resurgence in buyers, particularly in the Northeast and Midwest. The HMI for the Northeast jumped 22 points to 70 in July—it was just 17 two months earlier. The HMI also rose 18 points in the Midwest (68), 14 points in the West (80) and 10 points in South (73). Single-family starts jumped 17.2% in June and permits rose 11.8%.

“Both numbers are likely headed higher in coming months, but builders are running into some bottlenecks that will likely limit the extent of gains,” Vitner added. “Lumber prices have jumped up to their highest level in two years. Spot shortages of building materials and labor have also emerged due to prior shutdowns and the resurgence in COVID-19 cases in the South.

“Single-family homebuilding has several potent long-term tailwinds behind it. COVID-19 lockdowns have likely encouraged many apartment dwellers already contemplating buying a home to accelerate their timeframe for doing so. More broadly, COVID-19’s severe impact on major metro areas has led some to suggest an oncoming stagnation in urban centers. While these worries may be a bit premature, demographics alone suggest we may continue to see a shift to the suburbs. The movement of folks from higher cost parts of the country to the South, where single-family homes are more affordable and more prevalent, will also boost construction.”June2020 Us Housing Starts

TRIP Releases Report for America's Aging Interstate System [return to nav]

A new report by TRIP examines the aging U.S. Interstate Highway System as it faces increasing usage, mounting congestion and deteriorating road and bridge conditions.

The report, “Restoring the Interstate Highway System: Meeting America’s Transportation Needs with a Reliable, Safe & Well-Maintained National Highway Network,” finds that as the U.S. Interstate Highway System reaches 64 years old, it faces increasing congestion, unprecedented levels of travel – particularly by large trucks – and insufficient funding to make needed repairs and improvements.

TRIP found that there is a backlog to the tune of $123 billion for the needed repairs and improvements on our interstates. $54 billion is needed to improve pavements, $37 billion to repair our bridges (with 27% of all bridges needing repair) and additional $33 billion required for enhancements and expansions to combat rising traffic and congestion. The report suggested that in order to repair these systems, funding should be increased from the $23 billion that was spent in 2018 on these systems to over $57 billion annually over the next 20 years. 

State by State Break Down

TRIP’s report ranks the states by Interstate systems that are the most congested, have the largest share of pavement in poor condition and bridges in poor/structurally deficient condition, have the highest fatality rate, have experienced the greatest increase in vehicle miles of travel (VMT) since 2000, and that carry the greatest share of commercial trucks.

Pavements on 11% of Interstate highways are in poor or mediocre condition, with three percent rated in poor condition and eight percent rated in mediocre condition. Another nine percent of Interstate pavements are in fair condition and the remaining 79 percent are in good condition.

Hawaii is the worst off with 19% of their pavements considered in poor condition. Delaware (11%), Wyoming (9%) and New Jersey (8%) are next in line. 

An analysis of U.S. Department of Transportation’s National Bridge Inventory data indicates that more than one quarter – 27% – of Interstate bridges (15,709 of 57,741) are in need of repair or replacement. Three percent of the nation’s Interstate bridges are rated in poor/structurally deficient condition, and 56%  are rated in fair condition.  

The report found that Rhode Island and West Virginia are the most in need of bridge repairs with 17% and 14% of bridges being structurally deficient in those states respectively. 

The report also found that travel on our nation’s Interstate highways is increasing at a rate nearly triple the rate that new lane capacity is being added. From 2000 to 2018, vehicle travel on Interstate highways increased 25%, from 662 billion miles traveled annually to 829 billion miles. From 2000 to 2018, lane miles of Interstates in the U.S. increased nine percent, from 208,502 to 226,626 miles.

Forty-seven percent of the nation’s urban Interstate highways (8,914 of 19,160 miles) are considered congested because they carry traffic levels that result in significant delays during peak travel hours. Not surprisingly, California has the most congested roadways with 87% of their urban Interstate highways considered congested. Eighty-two percent of Maryland roadways are considered congested and 78% of New Jersey roadways. 

The full state-by-state breakdown can be found here.

Funding Needed Now

The ability of states to invest in Interstate highway repairs and improvements may be hampered by the tremendous decrease in vehicle travel that has occurred due to the COVID-19 pandemic, which the American Association of State Highway and Transportation Officials estimates will reduce state transportation revenues by at least 30% – approximately $50 billion - over the next 18 months.

The restoration and upgrading of the Interstate Highway System to meet 21st Century transportation needs will require strong federal leadership and a robust federal-state partnership to reestablish the Interstate Highway System as the nation’s premier transportation network.

"Today, the Interstate Highway System continues to save Americans time, lives and money while playing a critical role in supporting economic growth and enhancing the lifestyle choices of the nation’s residents and visitors," the report says. "If Americans are to continue to enjoy the benefit of the unparalleled level of access and mobility provided by the Interstate Highway System, which have enabled the nation’s unprecedented development and growth, the U.S. will need to commit to a well-funded program of Interstate restoration, modernization and renewal."

TRIP suggested the following be done to improve our Interstate system:

  • Reconstruct the nation’s Interstate Highway System, including pavements, bridges and interchanges o Improve safety features on Interstate highways
  • Right-size the Interstate Highway System by:
    • upgrading some existing roadways to Interstate standard
    • adding needed additional highway capacity on existing routes to maintain and improve mobility
    • adding additional corridors to accommodate demographic and economic growth
    • modifying some urban segments to maintain connectivity while remediating economic and social disruption 
New PPP Data Measures How Many Contractors and Construction Jobs the Loans Saved [return to nav]

Lendio recently released some statistics on the Paycheck Protection Program loans the U.S. small-business-loan marketplace for 300 lenders has helped facilitate. Construction ranked first among industries in which Lendio PPP loans were issued, with an aggregate value of more than $181 million.

The construction industry also ranked fourth in jobs saved due to PPP loans facilitated by Lendio, with over 15,000 jobs saved.

In just 3 months, 100,000 business owners have accessed $8 billion in PPP loans through Lendio. 98% of these applicants are first-time Lendio customers.

Coincidentally, the U.S. Small Business Administration released detailed loan-level data on the 4.9 million PPP loans that have been made.

“The PPP is providing much-needed relief to millions of American small businesses, supporting more than 51 million jobs and over 80% of all small business employees, who are the drivers of economic growth in our country,” said U.S. Treasury Department Secretary Steve Mnuchin. reports the SBA data indicate the industry receiving the largest volume in loans was health care and social assistance, accounting for nearly $67.4 billion. That was followed by professional, scientific and technical services, at $66.4 billion; construction, at $64.6 billion; and manufacturing, at $54 billion.

Indeed the PPP supported construction dramatically, with an Associated General Contractors survey indicating that 80% of members were approved for the loans.

President Trump signed legislation on July 4 extending the PPP application deadline to August 8, as $130 billion in funds remain to be dispersed through the program.        

May US Construction Spending Bucked Rising Employment with a 2.1% Drop [return to nav]

The coronavirus once again crushed the U.S. Commerce Department’s May construction value put-in-place estimates, which fell 2.1%. Construction spending has now fallen for three months in a row, a total of 5.9%, since peaking in February.May2020 Us Construction Segment Spenddata: US Department of Commerce; graph:

“The decline was surprising, as construction came back online relatively quickly following the lockdown,” says Mark Vitner, senior economist with Wells Fargo Economics. “Aggregate measures of construction activity, such as housing starts and construction employment, show more improvement. While many projects were quick to resume, many builders might have become more cautious about starting new projects.”

Some large municipalities were also slower in allowing construction to resume. The sudden halt to building activity in many areas may have created some unanticipated hurdles to restarting.

A survey by the Associated General Contractors of America and data from construction technology firm Procore show May construction activity is returning to pre-coronavirus (February/March) levels in many parts of the country and some firms adding workers. AGC analysis of May Bureau of Labor Statistics data shows construction employment increased in 92% of 358 metro areas. The AGC/Procore construction-activity data also shows some future projects being canceled and many others delayed by supply chain issues and labor shortages.

Much of the May decline in construction spending owed to a 4.0% drop on residential projects. Single-family outlays fell 8.5%, while multifamily rose 2.3%. Home improvement spending edged up 0.1%.

Nonresidential spending dipped 0.9%, but there was a significant divergence in public and private outlays. A 1.2% gain in public expenditures was driven by a 2.8% rebound in highway and street spending and a 1.2% climb in transportation outlays. Public education building expenditures also eked out a 0.1% rise. Despite this strength, the COVID-19 crisis has put the fiscal health of many state and local government under tremendous pressure. Declines in tax revenues will likely lead to large cutbacks in public construction projects this year and next, absent significant federal relief.

“It is likely that the pickup in highway construction and other public spending that occurred in May will fade as soon as current projects are completed,” said Ken Simonson, AGC's association’s chief economist. “Our latest survey of contractors, conducted June 9-17, found only about one-fifth of respondents had won new or expanded work—unchanged from early May. In addition, nearly one-third of respondents reported that an owner had canceled an upcoming project.”

Private nonresidential spending slipped 2.4%. Nearly every major subcategory declined. The 3.1% drop in the largest category, power, was an acceleration of the segment’s April loss. Perhaps more ominous is manufacturing construction’s turnaround. The segment managed a very slight gain in April, and fell 4.1% in May. The others of the largest five nonresidential categories dropped notably:

  • Commercial (-1.2%)
  • Healthcare (-6.7%)
  • Office (-1.1%)
Construction Employment Rebounds in May [return to nav]

Highway and bridge contractors added 4,400 jobs to the payroll between March and April, according to the latest data from the U.S. Bureau of Labor Statistics. Total employment increased to 324,300 workers in April, but declined 4 percent from 337,600 jobs in April 2019.

“Although highway and bridge construction work has continued to increase over the last few months and workers are being hired, we would expect more employees on the job at this point in the construction season,” said ARTBA Chief Economist Alison Black.  “The slow pace of hiring is not surprising given the broader economic uncertainty due to the COVID-19 pandemic.”

Detailed information for highway, street and bridge construction employment always lags one month behind the national jobs report. New data for the entire construction market shows that overall, the sector recovered some of the jobs lost in April. Construction firms employed 7.1 million workers in May, compared to 6.5 million in April and 7.3 million in March. But overall employment levels in May were down from 7.5 million workers in May 2019.

The economy gained 2.5 million jobs in May following significant employment declines in March and April. This is due to the resumption of some economic activity following the economic slowdown caused by the pandemic and efforts to contain it. Monthly job losses averaged 6.5 million over the past three months. The unemployment rate fell from 14.7 percent in April to 13.3 percent in May, as the number of unemployed people decreased from 23.078 million to 20.985 million.

Read ARTBA’s June labor report.

Trump Finally Plans His $1T Infrastructure Boost [return to nav]

Trump has promised a $1 trillion package for infrastructure since he was campaigning to be President in 2016 and it appears that he may finally fulfill that promise. 

Bloomberg says a preliminary version of the sweeping legislative package is being prepared by the Department of Transportation.  The plan would reserve most of the money for traditional infrastructure work, like roads and bridges, but would also set aside funds for 5G wireless infrastructure and rural broadband which he is scheduled to speak on later this week. 

In addition to his campaign promise, President Trump has launched numerous proposals for infrastructure spending during his presidency, and last year agreed in principal a $2 trillion plan with the Democratic party. It, however, never got off the ground.

In January, the Democratic-led House proposed its own $760 billion plan to renew infrastructure spending over the next five years. 

Where's the Pay For?

Funding such a package has always been an issue for both parties and it remains unknown how the Trump administration would fund this program as the president favors paying for the plans with minimal government money. He has been a proponent of raising the Federal gas tax and has discussed the involvement of the private sector, while Democratic rivals propose majority government funding.

"Since he took office, President Trump has been serious about a bipartisan infrastructure package that rebuilds our crumbling roads and bridges, invests in future industries, and promotes permitting efficiency," Judd Deere, White House spokesman said in a statement.

Infrastructure spending has long held appeal for lawmakers as a way to spur growth, and the pandemic is renewing calls to fast-track roads and other projects so it’s possible that the infrastructure measures currently being drafted could be rolled into the next round of pandemic relief. 

The Democratic bill to reauthorize the current infrastructure program was unveiled this month. It includes investments in roads and bridges, funding to make certain projects more resilient to climate change, and funding for public transit and Amtrak, among other priorities. The House Transportation committee is set to take up the measure this week.

The existing surface transportation authorization law, known as the FAST Act, authorizes $305 billion over five years and expires on Sept. 30. Lawmakers will either extend it or come up with a long-term replacement. It’s not yet clear how closely the administration’s plan will align with the Democrats’ proposal but it's clear some action on infrastructure is needed, and soon.

Trump Executive Order Scales Back Environmental Reviews on Infrastructure Projects [return to nav]

President Trump has issued an executive order to bypass environmental reviews. The hope is to reduce delays for projects and spur economic growth after the coronavirus pandemic through these infrastructure projects.

"From the beginning of my Administration, I have focused on reforming and streamlining an outdated regulatory system that has held back our economy with needless paperwork and costly delays," Trump said in the order. "Antiquated regulations and bureaucratic practices have hindered American infrastructure investments, kept America’s building trades workers from working and prevented our citizens from developing and enjoying the benefits of world-class infrastructure. The need for continued progress in this streamlining effort is all the more acute now, due to the ongoing economic crisis. Unnecessary regulatory delays will deny our citizens opportunities for jobs and economic security, keeping millions of Americans out of work and hindering our economic recovery from the national emergency."

The executive order would direct federal agencies to pursue emergency workarounds from bedrock environmental laws, such as the National Environmental Policy Act and the Endangered Species Act, to hasten completion of various infrastructure projects..

Trump has been issuing executive orders on a near-weekly basis during the Coronavirus pandemic. This order will mark his 25th of the year as he uses the pandemic to justify efforts to do away with government regulations that are designed to protect the environment and public health but are viewed by critics as costly and unnecessary.

Is De-Regulation Dangerous?

In 2017, Trump also tried to reduce regulatory reform designed to speed infrastructure projects. However, a report prepared for the Treasury Department in 2016 looked at 40 major proposed transportation and water projects whose completion had slowed or was in jeopardy and found that “a lack of funds is by far the most common challenge to completing these projects," and not regulation.

We know finding the additional dollars to fund new roads and bridges has proved challenging as lawmakers and the president fail to agree on what is necessary to raise more money for transportation projects without adding to the already soaring national debt.

While speeding up infrastructure projects is a good idea in theory, regulations are put in place to protect the environment and also those working on the projects and many fear this Executive Order is setting a dangerous precedent. Environmental groups have said sidestepping environmental review requirements would hurt many of the same communities already suffering the most from the pandemic.

““Abusing emergency powers to deep-six necessary environmental reviews is utterly senseless," Gina McCarthy of the Natural Resources Defense Council said. "These reviews are required by law to protect people from industries that can harm our health and our communities. Getting rid of them will hit those who live closest to polluting facilities and highways the hardest—in many of the same communities already suffering the most from the national emergencies at hand." 

House Speaker Nancy Pelosi also weighed in with a statement

“By using the coronavirus pandemic to justify fast-tracking potentially wasteful, dangerous or destructive infrastructure programs, the president has proven once again his utter contempt for our laws, for the health of our communities and for the future of our children,” she said.

Still, cutting regulations has been a hallmark of Trump’s presidency and conservative groups and lawmakers have been encouraging him to keep it up.

“Time is money, so eliminating delays that hold up or kill projects will have the same impact as increasing funding, and it will let workers get back on the job improving our infrastructure,” said Rep. Sam Graves, the ranking Republican on the House Transportation and Infrastructure Committee.

April US Housing Starts Fall to Five-Year Low [return to nav]

U.S. housing starts plunged 30.2% in April to an 891,000-unit seasonally adjusted annual rate that outstripped economists’ forecasts in a Reuters poll who expected a fall to 927,000 units. The April result was the lowest level of housing construction since early 2015, according to U.S. Department of Commerce numbers released today.

April 2020 Us Regional Housing StartsMany states considered homebuilding as essential when they enforced lockdown orders in mid-March to curb the spread of COVID-19, the respiratory illness caused by the coronavirus. But disruptions to building material supply chains have likely weighed on activity since the pandemic response began. An Associated General Contractors survey from the first week of May adds context to the status of construction investment: 37% of contractors say their owners voluntarily halted work out of fears of the pandemic. Thirty-one percent report canceled projects because of a predicted drop in demand. And 21% report projects canceled as a result of lost private funding.

“April’s decline largely reflects plunges in building activity in large states, some of which did not deem home construction an essential business,” says Mark Vitner, senior economist with Wells Fargo Economics. “But activity also pulled back even in states where homebuilding was deemed essential, as builders grew cautious amidst a nearly complete lull in demand as well as growing concerns about apartment tenant demand and the ability to collect rents.”

Permits for new construction fell 20.8%, but remain at a 1.074 million-unit pace that suggests builders are still planning construction.

Housing demand derives from underlying economic growth and the economy turned steeply into recession in April. Initial unemployment claims suggest more than 30 million jobs have been eliminated since early March. Fewer people are going to be interested in committing to a new mortgage when they are concerned about their job and income prospects.

Reuters reports economists expect the housing market downturn, together with a collapse in consumer spending, business investment and manufacturing, will result in gross domestic product (GDP) shrinking at as much as a 40% pace in the second quarter, the deepest since the 1930s. The economy contracted at a 4.8% rate in the January-March quarter.

Vitner's analysis points out that the just over half of job losses so far have been concentrated in the leisure, hospitality and retailing sectors, where part-time employment tends to be more common. Those losses are being felt most heavily by apartment owners. Recent wage gains had been pushing rent increases, but now they’re likely seeing the most delinquent rents and rising vacancies. Luxury and lifestyle communities appear to have dodged a bullet, as many of their tenants are now working from home. The wave of new construction currently underway that will likely be delivered in a weak job market.

“Demand for single-family homes has proven surprisingly resilient,” according Vitner. “While showings of existing homes were largely forbidden during April, buyers apparently returned later in the month. Mortgage applications for the purchase of a home have rebounded solidly and searches for new homes on Google have rebounded back to pre-shutdown level.

“April’s drop in starts also reflects some payback from the strong start to the year. Even with April’s drop, single-family starts through the first four months of this year are running 1.3% ahead of their year-ago level, and are up in every region except the Northeast, where they are down 25.5%."

A signal that the housing market is showing signs of stabilizing in the wake of the COVID-19 pandemic comes from builder confidence for newly-built single-family homes increasing seven points to 37 in May, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The rise in builder sentiment follows April’s largest single monthly decline in the history of the index.April 2020 Us Housing Starts


Marcum: Infrastructure Spending Drives Strong Q4 Commercial Construction Index [return to nav]

The Marcum Commercial Construction Index for the fourth quarter of 2019 reports healthy levels of construction spending in large part due to ongoing strength in infrastructure-related categories. Nonresidential construction spending stood at an annualized rate of $779.6 billion in December 2019, down 1.2% from the previous month but up 4.4% year-over-year. 

The index is produced by Marcum’s National Construction Services group.

Eleven of the 16 nonresidential construction sectors expanded year-over-year, including massive upticks in publicly funded categories like water supply (+33.6%), conservation and development (+16.9%), highway and street (+14.1%), and public safety (+10.1%).  Spending decreased from the same time last year in predominately privately funded categories like commercial (-4%), lodging (-3.9%), and amusement and recreation (-3%).

“The ongoing strength in infrastructure-related spending is a result of state and local finances being at their healthiest levels in quite some time as consumer spending, ongoing staffing expansions, and elevated assessed values drive tax collections higher,” wrote Anirban Basu, author of the report and Marcum’s chief construction economist.

Mr. Basu points to inflated property values as a possible explanation for stagnation in privately funded segments. “Investors and developers are becoming increasingly concerned that property values are speculatively high and that the pace of new project deliveries is outpacing the economy’s capacity to neatly absorb them,” he said.

Construction employment increased at a faster pace than the national nonfarm economy on both a monthly (+0.6%) and yearly (+1.9%) basis.  Nonresidential specialty trade contractors added jobs at an impressive rate throughout 2019, while the nonresidential building category exhibited the slowest pace of growth of any of the construction subsegments. 

Despite ongoing hiring, construction labor shortages remain problematic. “Throughout 2019, 4.2% of all available construction jobs were unfilled, the highest proportion on record.  Between 2001 and 2015, the proportion of construction jobs that went unfilled was just 1.8%,” wrote Basu.  

A reduction in trade-related uncertainty – the USMCA trade agreement was ratified, BREXIT is finally proceeding, and the U.S. and China have reached a phase I trade deal – along with a healthy residential sector and a labor market that exceeds expectations all represent economic tailwinds going into 2020.

Basu cites rising levels of debt across the economy, heightened political uncertainty as the November presidential election nears, and the effects of the coronavirus on world markets as tailwinds that could limit economic growth in 2020.