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AGC's Data DIGest: August 1-7, 2014

Construction spending skids in June; jobs rise in July; wage gains vary by sector, state

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.

Construction spending in June totaled $950 billion at a seasonally adjusted annual rate, down a steep 1.8% from May but up 5.5% from June 2013, the Census Bureau reported last Friday. Census revised up the totals for May (by $12 billion) and April ($5 billion). Private residential spending dropped 0.3% for the month but rose 7.4% over the latest 12 months; private nonresidential spending, -1.6% and 11%, respectively; and public construction spending, -4.0% and -2.9%. Of the three residential components, new single-family construction slid 1.4% in June but climbed 8.5% year-over-year; new multifamily, increased 2.5% and 33%, respectively; and improvements to existing residential structures, 0.4% and -0.2%. The largest private nonresidential segment was power construction (including conventional and renewable power plus oil and gas fields and pipelines), which slid 3.6% for the month but rose 23% year-over-year. The next largest private segments (in descending order of current size) were commercial (new and renovated retail, warehouse and farm), -1.3% and 11%, respectively; and manufacturing, -0.1% and 8.9%. Of the top two public segments, highway and street construction plunged 10% for the month and 8.5% over 12 months, while public educational spending fell 4.9% and 6.4%.

Nonfarm payroll employment rose by 209,000, seasonally adjusted, in July and 2,570,000 (1.9%) over 12 months, the Bureau of Labor Statistics (BLS) reported last Friday. Construction employment rose by 22,000 for the month and 211,000 (3.6%) over the year to 6,041,000, the highest total since May 2009. Residential construction employment (residential building and specialty trade contractors) climbed by 13,000 for the month and 115,600 (5.3%) for the year. Nonresidential employment (building, specialty trades, and heavy and civil engineering construction) increased by 9,100 in June and 95,700 (2.6%) year-over-year. All five residential and nonresidential segments added workers over 12 months. Aggregate hours worked in construction increased 4.7% over 12 months. The unemployment rate for jobseekers who last worked in construction fell to the lowest July level in seven years: 7.5%, down from 9.1% in July 2013 and 17.3% in July 2010. (Industry unemployment data are not seasonally adjusted and should only be compared year-over-year, not across months.) Since July 2010 the number of unemployed construction workers has dropped by 862,000, not seasonally adjusted. But construction employment rose by only 546,000, implying that over 300,000 experienced workers in the past four years left the industry for employment elsewhere, further training or schooling, retirement, or left the workforce. These departures may make it hard for contractors to find skilled workers if demand rises further, even though the unemployment rate remains higher than the overall nonfarm rate (6.5%, not seasonally adjusted; 6.2%, seasonally adjusted).

Although average hourly earnings (AHE) for the entire construction industry rose only 2.1% from July 2013 to July 2014, an AGC analysis of the data for 40 construction subsectors showed wide variation as to the current rates of wage change and whether the changes have been accelerating (as might be expected if the market is tightening and demand rising). The analysis used quarterly averages of year-over-year changes in AHE. Earnings increased by 10.2% from the second quarter (Q2) of 2013 to 2014Q2 in the steel and precast concrete contractors sector and 5.9% in the fast-growing oil and gas pipeline and related structures sector. AHE fell in seven sectors, including other building exteriors (-7.6%) and glass and glazing contractors (-7.2%). Relative to the previous year (2013Q1-2014Q1), earnings accelerated by 2.0 percentage points or more in five sectors and decelerated by 2.0 points or more in five. (Using quarterly averages and focusing on large changes reduces the impact of short-term movements.) A second AGC analysis, of BLS state data from the Quarterly Census of Employment and Wages, looked at whether the average weekly wage for the construction industry had accelerated in 2013. Weekly wages for all construction industry employees increased from 2012Q4 to 2013Q4 (the latest quarter available) by 9.5% in Wyoming and 7.5% in Mississippi, but decreased in nine states, with a 4.0% drop in Utah. Compared with the 2013Q1-2014Q1 period, wage gains accelerated in 35 states and the District of Columbia, led by a 9.4 percentage-point jump in Oregon. Wage gains slowed or turned (more) negative in 13 states, including a 5.6 point drop in Indiana. These analyses suggest that labor availability is tight (or tightening) in selected states and industry sectors, despite low average wage gains.

The Dodge Momentum Index declined for the first time in four months and “erased the gains made over the last two months, falling 4.4% in July,” McGraw Hill Construction reported last Thursday. The index is “a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. While the Dodge Momentum Index stumbled in July, on a year-over-year basis it remains 16.5% higher than a year earlier. The July decline therefore may simply be a return to a more sustainable pace following a spring bump. July’s decline in the Momentum Index was the result of a 6.8% drop in commercial building plans, while the institutional sector fell a milder 0.6%.”

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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