[NEWS TRACKER] Construction Starts Dropped Again in July

New Dodge Data numbers reflect a number of impediments that have materialized for construction in the past few months that are likely to last for some time; plus more construction news on the Sept. 3, 2020, edition of Construction News Tracker.

Construction News Tracker is presented by Caterpillar and produced by Forconstructionpros.com.

Factors impeding construction industry growth

The latest from Dodge Data shows that total construction starts dropped 7% from June to July as the nonbuilding sector fell 31%. The analytics forecast shows that during the first seven months of the year total construction starts lost 15% from 2019 with nonresidential off 25% and nonbuilding starts down 20% compared to last year.

ABC Chief Economist Anirban Basu says the new Dodge Data numbers reflect a number of impediments that have materialized for construction in the past few months that are likely to last for some time. As an example, the Backlog Indicator is off 7.8 months in July. Tighter credit conditions, challenged state and local government finances, and high levels of economic uncertainty are impacting construction spending and are likely to affect contractors going forward. Basu says commercial real estate fundamentals are likely to remain in poor shape for many years to come.

Hurricane Laura

Damage and destruction in the aftermath of Hurricane Laura along the nation's Gulf Coast is under assessment following the onslaught of August 26. Although contractors informed AGC that they had buttoned up operations in advance, they are likely to be consulting with local agencies on the work facing them as the cleanup activities get underway in earnest.

Surface transportation funding

The Transportation Construction Coalition is asking the Congress to extend the Surface Transportation Funding program by one year. The coalition co-chaired by AGC, the Association of General Contractors, and ARTBA, the American Road and Transportation Builders Association, apparently has reached the conclusion that the nation's Federal and Highway Transit Authorization effort will not be addressed by the time the present funding program ends September 30, as time is running short.

Construction outlook for 2020

The JLL Construction Outlook for the balance of 2020 appears mixed with nonresidential construction impacted by 10% to 15% while construction costs are predicted to drop by 2% to 5%. The JLL report focus’s on the virus pandemic and its effect on construction finding that 93% of construction was in areas of the nation with stay at home orders. Construction in locations with shutdowns temporarily dropped by 70%.

Going forward, the report states that schedule changes required to comply with distancing and other rules will remain a concern for contractors. Construction employment levels are expected to be down 5% to 10% for the balance of 2020, although more workers will be available for employment and that factor will drive down average construction costs for the first time since 2010 and is unlikely to show any growth until the third quarter of 2021.

One bright spot for construction economics comes in the latest report on the nation's home building industry, which rose by 22.6% in July. Commerce Department statistics show 1.5 million new homes were started in July, while new home sales rose 13.9%.

A nice bounceback from the pandemic lows, most of the big gains are in apartment and condo construction which jumped 56.7%.. Single family home construction rose on strong demand by 8.2%. The National Association of Home Builders confidence report shows contractors continued demand will carry forward through the balance of 2020 ,according to economists.

As an aside, existing home sales skyrocketed by 24.7 in July spurred by ultra low mortgage rates.

Flint, MI, water crisis continues

Acting on thousands of lawsuits filed over the Flint, MI, water crisis that erupted in 2014 the state has agreed to pay $600 million to residents whose health was affected by lead tainted water. After Flint changed its method of drawing water from Detroit's water supply to the Flint River in a cost cutting move it was found that thousands of tainted lead water supply lines were causing high levels of the substance in children's blood. The Michigan settlement will be earmarked for children under 18 that suffered illness. Thousands of water supply lines have been replaced in the interim, but residents are still wary of using the water as a result.

New rule proposed for rights of way

The Federal Highway Administration has proposed a new rule to support coordination of rights of way to accommodate broadband installation. Public utilities are generally accorded the rights of way in highway construction, and now the federal agency wants this accommodation extended to the new wireless broadband technology as well. The plan will reduce the amount of excavation necessary for utilities, and the FHWA expects the infrastructure will accommodate automated vehicle use in the future.

In closing, an obstacle is something you see when you take your eyes off the goal.

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