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AGC's Data DIGest: November 3-7, 2014

Employment rises in October; spending falls in September; Dodge predicts healthy 2015

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Nonfarm payroll employment rose by 214,000, seasonally adjusted, in October and 2,804,000 (1.9%) over 12 months, the Bureau of Labor Statistics (BLS) reported last Friday. Construction employment increased by 12,000 for the month and 231,000 (3.9%) over the year to 6,095,000, the highest total since May 2009. Residential construction employment (residential building and specialty trade contractors) climbed by 8,000 for the month and 130,600 (6.0%) for the year. Nonresidential employment (building, specialty trades, and heavy and civil engineering construction) increased by 3,600 in October and 99,800 (2.7%) year-over-year. Average weekly hours for all employees in construction matched the series high of 39.2 hours. Average hourly earnings for all employees in construction rose 2.6% from October 2013 to October 2014, the largest year-over-year increase since February 2010 and nearly double the 1.4% increase a year earlier. The number of jobseekers who last worked in construction hit an eight-year low of 542,000 and their unemployment rate fell to the lowest October level in seven years: 6.4%, down from 9.0% a year ago and an October peak of 18.7% in 2009. (Industry unemployment data are not seasonally adjusted and should only be compared year-over-year, not across months.) The rising wages and hours worked, along with the steep decline in unemployment, suggest contractors face increasing difficulty finding qualified workers.

Construction spending in September totaled $951 billion at a seasonally adjusted annual rate, a drop of 0.4% from the downwardly revised rate in August and up 2.9% from September 2013, the Census Bureau reported on November 3. Private residential spending rose 0.4% for the month and 0.7 % over the latest 12 months; private nonresidential spending, -0.6% and 6.3%, respectively; and public construction spending, -1.3% and 1.7%. Of the three residential components, new single-family construction rose 1.1% in September and 9.8% year-over-year; new multifamily, -1.0% and 26%, respectively; and improvements to existing residential structures, -0.2% and -17%. The largest private nonresidential segment was power construction (including conventional and renewable power plus oil and gas fields and pipelines), which fell 3.1% for the month but rose 2.3% year-over-year. The next largest private segments (in descending order of current size) were commercial (new and renovated retail, warehouse and farm), up 1.4% and 13%, respectively; manufacturing, -1.1% and 17%; and office, 2.4% and 16%. Of the top two public segments, highway and street construction fell 3.7% for the month and 1.7% over 12 months, while public educational spending increased 0.1% and 8.4%, respectively.

Dodge Data & Analytics (known as McGraw Hill Construction until its sale announced on November 3 by McGraw Hill Financial to Symphony Technology Group) released its 2015 Dodge Construction Outlook last Thursday. The report “predicts that total U.S. construction starts for 2015 will rise 9%..., a larger gain than the 5% increase…estimated for 2014. ‘The construction expansion should become more broad-based in 2015, with support coming from more sectors than was often the case in recent years,’ said Robert Murray, Chief Economist and Vice President…‘Financing for construction projects is becoming more available….While federal funding for construction programs is still constrained, states are now picking up some of the slack. Interest rates for the near term should stay low, and market fundamentals (occupancies and rents) for commercial building and multifamily housing continue to strengthen.’” The report predicts commercial building will increase 15%, vs. 14% estimated for 2014; institutional building will advance 9%, continuing the moderate upward trend that’s been established during 2014; multifamily housing will increase 9% in dollars and 7% in units to 405,000 (Dodge basis). Public works construction will improve 5%, vs. the 9% decline estimated for 2014; highway and bridge construction should stabilize, and modest gains are anticipated for environmental public works. Federal spending restraint will be offset by a greater financing role played by the states, involving higher user fees and the increased use of public-private partnerships. Electric utilities will slide 9%. Manufacturing plant construction will settle back 16%, following increases of 42% in 2013 and 57% in 2014.

The employment cost index, a weighted average of all wages and salaries, benefits, and required employer payments such as unemployment and worker’s compensation, rose 0.7% in the third quarter, seasonally adjusted, for all private-sector employees and for construction industry employees, BLS reported [9] on October 31. From September 2013 to September 2014, compensation rose 2.3% for all private industry and 1.4% for construction. However, the figures for construction may understate the increases in both residential and nonresidential segments because employment grew more than twice as fast in the lower-paid residential portion (5.9% from September 2013 to September 2014) than the higher-paid nonresidential segment (2.7%). Wages and salaries in construction also rose 1.4% over four quarters but accelerated sharply in the third quarter to a 1.0% increase, not seasonally adjusted, from 0.4% in the second quarter and -0.1% in the first quarter.

Union wage settlements in construction through September increased at the steepest rate in five years, according to a report from the Construction Labor Research Council. First-year settlements for wages and fringe benefits combined increased 2.3%, up from 2.2% in all of 2013, 2.0% in 2012, and 1.7% each in 2010 and 2011. However, second-year increases of 2.6% only matched the average for 2013, and third-year increases of 2.4% averaged less than in 2013 (2.6%). By craft, average first-year settlements ranged for 1.7% for painters and plumbers to 3.4% for operating engineers.

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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