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AGC's Data DIGest: April 24-28, 2017

Pay accelerates in latest year; structures investment jumps in first quarter but may slow

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The Bureau of Labor Statistics (BLS) released the employment cost index, a measure of compensation (wages, salaries and benefits, including required payments), for the first quarter of 2017 (2017Q1). In the private sector as a whole, compensation increased 0.8%, seasonally adjusted, from December to March (up from 0.5% in 2016Q4) and 2.4% from March 2016 to March 2017 (up from 1.9% the year before). Compensation for all employees in the construction industry increased 0.6% in Q1 (vs. 0.7% in 2016Q4) and 2.5% over 12 months (vs. 2.3% in the prior 12 months). Compensation for private-sector employees in construction, extraction, farming, fishing and forestry occupations (most of whom are construction trades) accelerated a bit more than it did for all construction industry employees: 2.7% from 2016Q1 to 2017Q1, up from 2.2% in the previous four quarters. Wages and salaries for these occupations increased 0.8% in Q1 and 3.1% over four quarters (up from 2.3% over the prior year). Wages and salaries for all construction-industry employees increased 0.7% in Q1 and 2.7% over four quarters (up from 2.6% over the prior year.) The fact that wages rose more rapidly—and accelerated more—for construction occupations than for the industry fits with reports from contractors and homebuilders that craft workers are hard to find and that companies are raising pay to attract and retain them.

The Construction Labor Research Council issued Union Construction Labor Cost Trends and Outlook 2017, covering construction union local pay agreements ratified in 2016. First-year increases are projected to rise from 2.8% in both 2015 and 2016 to 2.9% in 2017 and 3.1% in 2018. Among 17 crafts, 2017 first-year increases range from 1.6% for boilermakers to 4.1% for painters. Among eight regions, increases range from 2.3% in New England to 3.4% in the South Central region.

Inflation-adjusted gross domestic product (real GDP) increased 0.7% at a seasonally adjusted annual rate in Q1, down from 2.1% in 2016Q4, the Bureau of Economic Analysis (BEA) reported Friday. Real gross private domestic investment in nonresidential structures soared 22% (vs. -1.9% in Q4), the largest quarterly rise since 2014Q1. Real residential investment jumped 14% (vs. 9.6% in Q4), the most since 2015Q2. Real government gross investment in structures plunged 15% (vs. a gain of 10% in Q4). The GDP price index increased 2.3%, up from 2.1% in Q4. The price index for nonresidential structures investment climbed 2.9% (vs. 2.6% in Q4). The price index for residential investment rose 2.4% (vs. 5.3% in Q4). The price index for government investment in structures rose 3.3% (vs.2.1%).

The National Association for Business Economics (NABE) released its latest quarterly business conditions survey last Monday. Of the 66 corporate and trade association economists who reported on capital spending on structures at their firms in Q1, 21% reported an increase from 2016Q4, while 15% reported a decrease, for a net increase of 6% (vs. a net of 0 from Q3 to Q4). For the next three months, 19% expect an increase in structures spending at their firms, while 13% expect a decrease.

“A seven-year expansion slowed" in the office market, the Wall Street Journal reported on April 19. Citing real-estate data firm Reis Inc., "tenants occupied 5 million square feet more at the end of the first quarter than at the beginning of the year, compared with an average of 9.4 million square feet per quarter in 2016." However, office construction remains strong for now. The Census Bureau reported on April 3 that private office construction spending increased 29% in the first two months of 2017 compared to the same period in 2016, almost matching the 2016 full-year growth rate of 30%.

The Trump administration's restrictions on foreigners traveling to the U.S. may affect hotel construction. "Marriott International, the world's largest hotel chain, has noted a 15% drop in bookings from Mexico to the United States," the Washington Post reported on April 14. "Meanwhile, booking from the Middle East to the United States fell about 30% in February."

Inflation-adjusted real GDP by industry estimates released by BEA on April 21 show that "19 of 22 industry groups contributed to the overall 2.1% increase in real GDP" at a seasonally adjusted annual rate in 2016Q4. Real GDP in construction inched up at a 0.6% rate (vs. 0.8% in Q3). Nevertheless, the industry's share of GDP held steady at 4.2% ($798 billion out of $18.869 trillion in current dollars). "Real gross output—principally a measure of an industry's sales or receipts, which includes sales to final users in the economy (GDP) and sales to other industries (intermediate inputs)—increased in [Q4] in 18 of 22 industry groups." Current-dollar output in construction totaled $1.455 trillion in Q4, up 1.9% from Q3.

The Census Bureau released the 2015 County Business Patterns (CBP) statistics on April 20. These tables provide details by detailed industry on number of establishments, employees and payroll at the state, county, metro and other geographic levels.

In 2012, the top two industries for "veteran-owned firms were: professional, scientific and technical services (16.6% of all veteran-owned firms) [and] construction (13.2%)," the Office of Advocacy of the U.S. Small Business Administration reported last Monday in Veteran-Owned Businesses and Their Owners. (Although the data in the report are from the Census Bureau's 2012 Survey of Business Owners, annual employment data from BLS suggests veterans' industry distribution and shares have not changed much since then.) Veteran-owned firms constituted 9.1% of all firms but 11.4% of construction firms. In contrast, an AGC analysis of BLS data for 2015 and 2016 found that construction firms employed about 9% of veteran employees of all private industry firms but roughly 12% of private-industry non-veteran employees.

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