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AGC's Data DIGest: July 22 – July 26, 2013

Construction hat sitting on paperStarts dip, MHC says; AIA, NABE find positive outlook; hotel construction is reviving

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.

The value of new construction starts in June edged down 1% from May at a seasonally adjusted annual rate, McGraw Hill Construction (MHC) reported on Monday. “Nonresidential building lost momentum in June after strengthening during the previous two months, and housing experienced a pause from its recent upward trend. Meanwhile, nonbuilding construction advanced in June, lifted by the start of several very large bridge projects. For the first six months of 2013, total construction starts on an unadjusted basis were… down 2% from the same period a year ago. The 2013 year-to-date decline for total construction was due primarily to a sharp reduction for electric utilities compared to a robust first half of 2012. If electric utilities are excluded, total construction starts for the first six months of 2013 would be up 9% from last year, led by substantial growth [28%] for housing,” which offset year-to-date declines of 9% for nonresidential building and 24% for nonbuilding construction.

More architecture firms reported rising than falling billings in June, the American Institute of Architects (AIA) stated on Wednesday in releasing its Architecture Billings Index. The index, which ranges from 0 to 100, with 50 indicating equal positive and negative responses, was above 50 for the ninth time in 10 months, at 51.6, following a reading of 52.9 in May. Readings were favorable for all specialty practices: commercial/industrial, 54.7; residential (mainly multifamily), 54.0; mixed practice, 52.4; and institutional, 51.8. The AIA noted on Thursday, “firms reported an increase in the value of new construction contracts for the sixth consecutive month. In addition, average architecture firm backlogs in June remained unchanged from March, at five months. Backlogs have been inching up incrementally since the AIA began tracking that information on a quarterly basis in late 2010, but remain fairly modest.”

The National Association for Business Economics (NABE) reported on Monday, “Despite mixed signals regarding second-quarter business conditions, NABE’s industry survey panel remains upbeat about the future. The forecast for economic growth improved for a third straight quarter, with more than 70% of respondents indicating they are now anticipating [inflation-adjusted gross domestic product] growth will exceed 2% in the next 12 months…. Expectations for business investment also strengthened in July, and the employment outlook remains close to a two-year high.” On balance, expectations for investment in structures weakened but remained positive. Slightly more respondents (28% in the July survey vs. 26% in the April survey) said they expect their firms to increase spending on structures in the next 12 months, but 12% (vs. 8% in April) said they expect a decrease.

Hotel occupancy levels in many metros are at or above prerecession levels, room rates are bouncing back, and the RevPAR [revenue per available room] level for the top U.S. office markets will be fully recovered by the end of 2013,” according to an article in the July 22 ­CoStar Watch List Newsletter. Sustained growth in RevPAR is a favorable indicator for hotel renovation and new construction. Private lodging construction spending in the first five months of 2013 increased 25% from the same period in 2012, the most of 11 private construction segments, the Census Bureau reported on July 1. “First quarter results show that the [hotel construction ‘pipeline’] has begun a modest recovery off the cyclical bottom established just a year ago,” the consulting firm Lodging Econometrics reported in its Summer 2013 Lodging Real Estate Trends. The improvement is a result of increases in both New Project Announcements…and by Construction Starts—metrics which impact the early two stages of the Pipeline: projects Under Construction where rooms are up 25% year-over-year and those scheduled to start construction in the next 12 months, up by 22%.” Breaking Ground, an e-newsletter of the Tall Timber Group, reported on Thursday that 11 hotels have started so far this year in western Pennsylvania, and noted, “there haven't been 11 hotel/motels started in any given year for at least the last decade….more than a dozen hospitality projects [are] still in the pipeline in metro Pittsburgh.”

An analysis of “high-employment growth” firms published in the June issue of the Monthly Labor Review found that these firms constituted 2.0% of all firms but accounted for “35% of all gross job gains from expanding firms [from March 2009 to March 2012.] These high-growth firms tended to be young and small firms as well as older firms (10 years old or older), yet much of the job creation attributable to high-growth firms came from the older firms.” The 565,000 construction firms in March 2009 made up 12% of the total. Construction firms were just as likely as firms in other industries to meet the definition used in the study for high growth but the 2.0% of construction firms considered high-growth added fewer jobs (29) on average than high-growth firms in all industries (43).

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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