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AGC's Data DIGest: January 21 – 24, 2014

AGC members, MHC, Reed economists foresee upturn in 2014; union share of jobs rises

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.

Contractors are more upbeat about the near-term outlook for construction – especially private construction – than they have been since the recession ended in 2009, according to an annual survey AGC released last Tuesday.  More than 800 members from every state and the District of Columbia answered the online questionnaire in December or early January.  In contrast to prior years, when most respondents thought the construction market would not begin to grow for two years or more, a plurality of this year’s respondents – 37% – picked 2014 as the year the market would grow.  Another 32% picked 2015.  In all but one of 11 market segments, contractors who said they expect the dollar volume of projects they compete for would rise in 2014 outnumber those who said volume would shrink.  For five largely private-sector segments, at least 40% of respondents expect the market to expand and fewer than 20% expect the market to decline in 2014.  The difference between the optimists and pessimists – the net positive reading – was 28% for private office, manufacturing and the combined retail/warehouse/lodging segments, and 25% for power and hospital/higher education construction. Among public-sector segments, optimism is greatest regarding demand for new water and sewer construction, with a net positive of 17%; followed by highways, 10%; public buildings, 5%; schools, 4%; transportation facilities other than highways, 3%; and marine construction, -2%.  Roughly 90% of respondents report they expect prices for key construction materials to increase in 2014. Meanwhile, 82% of firms report they expect the cost of providing health care insurance for their employees will increase in 2014.  Nevertheless, only 1% of firms report they plan to reduce the amount of health care coverage they provide.  Regarding labor availability, 62% of responding firms report having a difficult time filling key professional and craft worker positions.  Two-thirds of firms expect it will either become harder or remain as difficult to fill professional positions, whereas 74% say it will get harder, or remain as hard, to fill craft worker positions.

New construction starts in December rose 5% at a seasonally adjusted annual rate, McGraw Hill Construction (MHC) reported last Thursday.  “Although both nonresidential building and housing settled back during the final month of 2013, the nonbuilding construction sector (public works and electric utilities) finished the year on a strong note.  For 2013 as a whole, total construction starts advanced 6% [following] the 10% gain reported for 2012 (which drew support from a record amount of new electric utility starts that year) and modest 2% gains in both 2010 and 2011.  If the volatile electric utility category is excluded, total construction starts in 2013 would be up 14%, following a 9% gain in 2012 and essentially flat activity during 2010 and 2011.”  For 2014, MHC Chief Economist Robert Murray said, “the prospects look good for total construction, with growth anticipated for housing and commercial building, while the institutional building sector at least stabilizes.”

The value of nonresidential construction starts dipped 0.2% from December 2012 to December 2013, Reed Construction Data reported on January 16, based on data it compiled.  For the year, starts rose 3.3% from 2012. Commercial starts for the year jumped 27%, with retail up 42%; offices, 20%; and hotels, 61%.  Industrial building starts edged up 1.1% Institutional building starts slid 11%, with schools and colleges down 9.0% and hospitals and clinics off 6.9%. Heavy engineering (nonbuilding) starts rose 4.3%, with roads and highways up 1.0%, and water and sewage starts up 4.7%. Chief U.S. Economist Bernard Markstein said, “the outlook for nonresidential construction is for a better performance in 2014.”

“In 2013, the union membership rate – the percent of wage and salary workers who were members of unions – was 11.3%, the same as in 2012,” the Bureau of Labor Statistics reported on Friday.  “The union membership rate for public-sector workers (35.3%) was substantially higher than the rate for private-sector workers (6.7%)….In the private sector, industries with high unionization rates included utilities (25.6%), transportation and warehousing (19.6%), telecommunications (14.4%) and construction (14.1%).”  The number of construction industry employees who were members of unions rose from 820,000 (13.2% of all employees) in 2012 to 915,000 (14.1%).  The number of employees represented by unions (members plus workers who report no union affiliation but whose jobs are covered by a union contract) rose from 850,000 (13.7%) in 2012 to 967,000 (14.9%).  Median weekly earnings of full-time wage and salary workers in construction increased 0.9% to $1,096 for union members and fell 1.2% to $713 for nonmembers, perhaps reflecting the hiring or recall of less-experienced workers.

The outlook for retail construction remains bleak.  “On Tuesday, Sears said that it will shutter its flagship store in downtown Chicago in April,” CNBC.com reported last Wednesday.  “It's the latest of about 300 store closures in the U.S. that Sears has made since 2010.  The news follows announcements earlier this month of multiple store closings from major department stores JCPenney and Macy's.  Shoppers will likely see an average decrease in overall retail square footage of between one-third and one-half within the next five to 10 years, as a shift to e-commerce brings with it fewer mall visits and a lesser need to keep inventory stocked in-store, said Michael Burden, a principal with Excess Space Retail Services.”

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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