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AGC's Data DIGest: Aug. 31-Sept. 4, 2015

Employment growth slows as hourly pay, construction spending accelerate

Editor’s note: Construction Citizen is proud to partner with AGC America to bring you AGC Chief Economist Ken Simonson's Data DIGest. Check back each week to get Ken's expert analysis of what's happening in our industry.

Nonfarm payroll employment increased by 173,000 in August, seasonally adjusted, and by 2,919,000 (2.1%) over 12 months, the Bureau of Labor Statistics (BLS) reported today. Construction employment rose by 3,000 for the month (to 6,388,000) and by 41,000 (6,800 per month) over the past six months, far below the monthly average gain of 29,700 in the previous six months. The number of unemployed jobseekers who last worked in construction fell from 678,000 in August 2014 to 525,000 in August 2015, the lowest August total since 2001. The unemployment rate for such workers fell from 7.7% to 6.1%, the lowest August rate since 2007. (Industry unemployment data are not seasonally adjusted and should only be compared year-over-year, not across months.) Average hourly earnings for all employees in construction, a measure of wages and salaries, increased 2.8% from August 2014 to August 2015, the steepest rise since October 2009. The sluggish growth in construction employment and decline in the pool of experienced jobseekers, despite acceleration in wages and spending (see below) and steady growth in design work, suggest contractors are experiencing greater difficulty finding qualified new hires.

Construction spending in July totaled $1.083 trillion at a seasonally adjusted annual rate, the highest rate since May 2008, the Census Bureau reported on Tuesday. The level was up 0.7% from the rate in June (which was revised up by 1.1% or $11 billion) and up 13.7% from July 2014. That was the eighth consecutive monthly increase and the fastest year-over-year growth rate since March 2006, suggesting steady acceleration in residential, private nonresidential and public construction activity. Private nonresidential spending rose 1.5% for the month and 18% year-over-year; private residential spending, 1.1% and 16%, respectively; and public construction spending, -1.0% and 6.1%. The residential total comprises year-over-year increases of 21% for multifamily, 16% for single-family and 9.8% for improvements. The largest private nonresidential segment, manufacturing construction, soared 73%, led by a doubling of spending for chemical plants and tripling for transportation equipment factories. Next in size came power construction, up 13% year-over-year (a mix of conventional and renewable power, down 21%, and oil and gas fields and pipelines, up 15%), followed by commercial (new and renovated retail, warehouse and farm), up 4.9%; private office, up 29%; and private health care, up 13%. The top public segments also had year-over-year gains: highway and street construction, 9.1%; public educational spending, 2.6% and public transportation facilities, 4.1%.

Construction employment, not seasonally adjusted, increased from July 2014 to July 2015 in only 168 (47%) of the 358 metro areas (including divisions of larger metros) for which the BLS provides construction employment data, decreased in 138 (39%) and was stagnant in 52, according to an AGC release and map on Tuesday that analyzed BLS data. (BLS combines mining and logging with construction in most metros to avoid disclosing data about industries with few employers.) The number of metros with job increases was the smallest since late 2011. Given the strong spending construction increase for the latest 12 months and the 14-year low in unemployed construction workers, it is possible that employment gains in some metros were held down by a lack of available workers rather than lack of projects. The Seattle-Bellevue-Everett division again added the largest number of construction jobs in the past year (10,300 construction jobs, 13%), followed by Warren-Troy-Farmington Hills, Mich. (9,100 combined jobs, 20%) and Denver-Aurora-Lakewood, Colo. (8,900 combined jobs, 10%). The largest percentage gains occurred in El Centro, Calif. and Weirton-Steubenville, W. Va.-Ohio (28%, 500 combined jobs in each), followed by Wenatchee, Wash. (23%, 400 combined jobs). The largest job losses were in Fort Worth-Arlington, Texas (-3,300 combined jobs, -4%), New Orleans-Metairie (-2,700 construction jobs, -9%) and Gulfport-Biloxi-Pascagoula, Miss. (-2,100 combined jobs, -23%), which had the largest percentage decline, followed by Lawrence-Methuen Town-Salem, Mass.-N.H. (-16%, -400 combined jobs).

Reports from the 12 Federal Reserve districts "indicate economic activity continued expanding across most regions and sectors" from July to mid-August, the Fed reported on Wednesday in its latest "Beige Book," a compilation of informal soundings of business conditions in each district (which is referenced by the name of its headquarters city). Manufacturing "demand from the construction industry was strong, with the Boston, Philadelphia, Cleveland, Chicago, Minneapolis and Dallas districts reporting increases in demand for construction-related goods from lumber to construction machinery." Residential construction "activity was reportedly increasing in most districts, but was moderate or flat in the Boston, Philadelphia, Richmond, Minneapolis and Dallas districts....However, Cleveland also cited supply-side constraints and difficulty obtaining construction financing. Similarly, Boston noted difficulty in obtaining new construction permits. San Francisco reported that construction activity slowed in some areas due to tighter borrowing conditions and shortages of skilled labor and available land....Commercial construction activity increased in the Cleveland, Atlanta, St. Louis and San Francisco districts. Commercial construction was described as active in the Dallas district, strong-to-robust in the New York and Minneapolis districts, and steady at a solid pace in the Philadelphia district's urban centers. In urban Boston, office construction activity increased from levels that were seen as below normal in relation to fundamentals, and elsewhere in the Boston district commercial construction activity was mixed. The outlook for commercial construction was generally positive in the Boston, Cleveland, Atlanta and San Francisco districts, but risks to growth in construction activity include rising labor costs for skilled workers (noted by Boston and Cleveland contacts) and tighter underwriting standards for construction loans" (San Francisco).

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