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," Arniban 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]
  • The U.S. Industrial Production quarterly rate-of-change rose further in August, marking two consecutive months of rise.
  • Rising U.S. leading indicators portend further quarterly rate-of-change rise ahead. Secondary business shutdowns in response to the potential combination of rising COVID-19 cases and the onset of fall flu season would pose a downside risk.

Industrial



U.S. Leading Indicator [return to nav]

  • The Conference Board’s U.S. Leading Indicator rose in August.
  • Four consecutive months of rise in the Leading Indicator signal probable recovery and expansion for the U.S. industrial sector beginning in the first half of next year.

Leading



U.S. Private Nonresidential New Construction [return to nav]
  • U.S. Private Nonresidential Construction totaled $120 billion for May, June and July, coming in 3.3% below the same three months one year ago.
  • Decline in multiple architecture billings indexes and in the Construction Backlog Indicator suggest Construction business cycle decline will persist in at least the coming quarters.

Nonres

Construction Machinery, New Orders [return to nav]
  • U.S. Construction Machinery New Orders during the 12 months through July totaled $31.4 billion, down 9.4% from the year-ago level.
  • Certain sectors of construction, such as single-family housing, are faring comparatively well through the COVID-19 pandemic and may provide relatively greater growth opportunities.

Machinery

U.S. Total Public New Construction [return to nav]
  • Annual U.S. Total Public Construction totaled $346.4 billion in July, up 7.4% from the year-ago level.
  • Annual Construction is expected to move further along the back side of the business cycle in the coming quarters, as public construction projects face funding limitations given the backdrop of a recession and the need to divert resources toward combating COVID-19.Public


U.S. Heavy-Duty Truck Production [return to nav]
  • Annual U.S. Heavy-Duty Truck Production reached the lowest level in over 9 years and was down 34.9% year over year.
  • As the U.S. economy is recovering during 2021, the increased transport of goods will drive up demand for heavy-duty trucks.


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 InvestmentExecutive.com 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 TheStreet.com. 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.

RollCall.com 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: ForConstructionPros.com

“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.