Construction spending hits 6-1/2 year high in May; metro job gains shrink; ABI moves up
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Construction spending in May totaled $1.036 trillion at a seasonally adjusted annual rate, the highest rate since October 2008, the Census Bureau reported today. The level was up 0.8% from the rate in April (which was revised up by a steep 2% or $20 billion) and up 8.2% from May 2014. Private nonresidential spending increased 1.5% for the month and 13% year-over-year, private residential spending rose 0.3% and 7.8%, respectively, and public construction spending gained 0.7% and 2.8%. However, the residential total masks a 13% year-over-year rise in new construction (21% for multifamily and 11% for single-family) and a drop of 3.4% in improvements. A 70% increase in manufacturing construction (led by a doubling of spending for chemical plants and tripling for transportation equipment plants) made this the largest private nonresidential segment. Next came power construction (conventional and renewable power plus oil and gas fields and pipelines), down 22% year-over-year, followed by commercial (new and renovated retail, warehouse and farm), up 11%; and office, up 27%. The two top public segments also had year-over-year gains: highway and street construction, 1.7%; and public educational spending, 3.4%. Census made annual revisions to 2013 and 2014 data. Total spending rose 6.6% in 2013 (instead of 5.6%) and 4.8% in 2014 (instead of 5.5%). Census will hold a free webinar on Wednesday, July 8 on "Understanding Construction and Housing Statistics."
Construction employment, not seasonally adjusted, increased from May 2014 to May 2015 in 205 (57%) of the 358 metro areas (including divisions of larger metros) for which the BLS provides construction employment data, decreased in 101 (28%) 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 in 13 months. The Seattle-Bellevue-Everett division again added the largest number of construction jobs in the past year (11,300 construction jobs, 15%), followed again by Denver-Aurora-Lakewood (10,400 combined jobs, 12%). The largest percentage gains again occurred in Wenatchee, Wash. (30%, 600 combined jobs), followed by Bellingham, Wash. (23%, 1,300 combined jobs) and Atlantic City-Hammonton, N.J. (22%, 1,100 combined jobs). The largest job losses again were in New Orleans-Metairie (-3,200 construction jobs, -10%) and Gulfport-Biloxi-Pascagoula, Miss. (2,600 combined jobs, -25%), which had the largest percentage decline, followed by Santa Fe., N.M. (-19%, -500 combined jobs). Readers who work for construction firms are invited to participate in AGC's current Workforce Survey.
"Led by growing demand for new schools, hospitals, cultural facilities and municipal buildings, the [Architecture Billings Index] increased in May" to 51.9 from 48.8 in April, the American Institute of Architects reported on June 24. "This score reflects an increase in design services (any score above 50 indicates an increase in billings)."
"Employers took on 8.2 million square feet of additional office space in the second quarter, marking one of the stronger periods since the recession but a relatively modest expansion by historical standards, according to real-estate research service Reis Inc...., which tracks 79 markets," the Wall Street Journal reported today. Employers "occupy about 36 million square feet less than they did at the peak in 2007. That is about a year's worth of growth at the current rate, although it could disappear faster if the pace picked up. [The office market is] highly dependent on the strength of local economies. Leading the way in terms of rent and occupancy growth are regions driven by the technology sector: [Seattle, San Francisco and the San Jose area]. The mood is more relaxed elsewhere in the country, as cities generally are experiencing slow and steady growth in rents and occupancies. One exception is Houston, which is facing a drop in demand...The vacancy rate climbed to 15.6% in the second quarter, up from 14.4% a year earlier."
"State and local governments still face enormous fiscal challenges, including slow growth in tax revenues, cuts in most areas of spending, and difficulties in performing essential functions," the Rockefeller Institute reported on June 23 in a new study, The Economy Recovers While State Finances Lag. "Many states have cut spending more deeply in the wake of the Great Recession than in any other recent recession. Reductions have occurred in construction, elementary and secondary education, highways, policy and corrections, natural resources (including parks and recreation), and general expenditures—nearly every spending area outside of Medicaid and contributions to public employee pensions....Inflation-adjusted state and local government spending for construction fell by $50 billion between the fourth quarters of 2007 and 2014."
Consultant IHS and the Procurement Executives Group (PEG) reported on June 24 that "construction costs fell again in June....The headline current IHS PEG Engineering and Construction Cost Index (ECCI) registered 47.4 in June, down from May's reading [47.9] and below the neutral mark [in which a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength]. The current materials/equipment index registered 46.0 in June, down from 47.4 in May, and is consistent with the overall narrative of softer prices. Seven of the 12 individual components registered falling prices this month. Price declines were led by carbon steel pipe, alloy steel pipe and fabricated structural steel. Prices also slipped for copper-based wire and cable, reversing gains experienced in May. Five components did show higher prices in the materials/equipment index in May, led by ready-mix concrete....The current subcontractor labor index registered 50.7 in June, slightly above May's reading, pushing prices above the neutral mark for the first time since January."
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