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AGC's Data DIGest: April 21–25, 2014

Nonresidential starts rise, MHC says; ABI turns negative; industry GDP fell in late 2013

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The value of new construction starts in March increased 7% at a seasonally adjusted annual rate, McGraw Hill Construction (MHC) reported last Monday, based on data it collected. “Nonresidential building picked up the pace [+24%] after its lackluster performance at the outset of this year, while nonbuilding construction managed a moderate gain [6%]. Meanwhile, residential building settled back [-2%] as single-family housing remained sluggish. During the first three months of 2014, total construction starts on an unadjusted basis were…down 2% from the same period a year ago.” That dip included a 3% year-over-year rise in residential building, a 4% drop in nonresidential building and an 8% decline in nonbuilding construction. MHC Chief Economist Robert Murray stated, “The slow start for construction activity in early 2014 can be attributed to tough winter weather conditions, in combination with the up-and-down pattern that’s frequently been present during the hesitant upturn witnessed over the past two years. This is particularly true for nonresidential building, which bounced back sharply in March after depressed activity in January and February, alleviating some concern that its recovery may be stalling. Nonresidential building’s potential for more growth in 2014 is being supported by a rising volume of bank lending directed at commercial real estate development, more energy-related manufacturing projects, and signs that the institutional building sector is finally turning the corner after five years of decline. Nonbuilding construction in 2014 is seeing a less severe pullback for electric utilities compared to last year, although public works is generally proceeding at a slower clip. Residential building so far in 2014 is benefiting from more strength for multifamily housing, yet the loss of momentum for single-family housing in the first three months of 2014 stands out relative to the steady gains…in 2012 and most of 2013.”

The number of architecture firms reporting that billings decreased in March exceeded the number reporting increases, the American Institute of Architectures stated last Wednesday in its latest Architecture Billings Index (ABI). The ABI, a harbinger of construction spending 9-12 months later, slid to 48.8, “down sharply from a mark of 50.7 in February” and 50.4 in January. The index ranges from 0 to 100, with 50 indicating an equal balance of rising and declining billings among the roughly 700 firms that participate in the survey. Practice specialty sub-indexes (calculated as three-month averages) varied: residential (mainly multifamily), 52.1, down slightly from 52.4 in February; commercial/industrial, 49.6, down from 51.9; institutional, 49.0, down from 49.6; and mixed practice, 47.6, up from 46.6. The survey also asked panelists: “‘To the best of your knowledge, what has happened to architects who lost their positions during the downturn, and how many are likely to return to the profession?’ Panelists estimated that almost half of the architects and unlicensed architecture staff downsized during the recession have resumed working full-time in the architecture profession. An additional 16% are back working in architecture positions on a part-time or contract basis, while an another 16% are either working outside the profession and expected to return when architecture positions open up, or are not currently working and waiting for architecture positions to open. That leaves 14% currently working outside of architecture and unlikely to return, and an additional 10% not working, but not likely to return to the profession (or retired).”

The Bureau of Economic Analysis (BEA) released Friday, for the first time, gross domestic product (GDP) by industry for 22 sectors on a quarterly basis. An industry’s GDP, or value added, “represents the sum of the costs-incurred and the incomes-earned in production, and consists of compensation of employees, taxes on production and imports, less subsidies, and gross operating surplus.” It equals the gross output of an industry (or the value of its sales) minus its purchases. Real (net of inflation) GDP increased 2.6% in the fourth quarter of 2013 (after rising 4.1% in the third quarter), with 15 out of 22 sectors contributing to the gain. Value added by construction slumped 5.9% in the fourth quarter, following a 6.6% rise in the third quarter. The chain-type price index for GDP rose 1.6% in the fourth quarter and 2.0% in the third. The price index for value added by construction soared 10.5% in the fourth quarter, by far the most of any sector, and 2.8% in the third. The large increase may reflect a jump in selling prices for new houses along with an increase in homebuilding relative to other types of construction, and not necessarily an increase in prices for other types of construction. In 2013 as a whole, construction value added in current dollars totaled $611 billion, or 3.6% of GDP ($16.8 trillion). Gross output in construction totaled $1.119 trillion; thus, purchases of goods and services from other sectors accounted for $508 billion (45% of gross output).

Among the 72 corporate economists responding the quarterly Industry Survey that the National Association for Business Economics released last Monday, the “percentage of survey panelists who expect their firms to add workers or increase overall capital spending increased strongly from that reported in the January survey.” Of the 62 panelists who answered a separate question on spending on structures, 28% said they firms will increase spending over the next 12 months, compared with 8% who expect a decrease. The 19% net positive reading was double the net in the January survey.

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at www.agc.org/datadigest.

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