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Houston’s Monthly Metrics: August

The following article originally appeared in the August newsletter to clients of Kiley Advisors, LLC for the purpose of providing the latest leading indicators and industry issues to those clients.  Reprinted with permission.

The construction market has become so busy, that there are reports of delays and pushbacks.  This is, in part, due to contractors being stretched too thin from the shortage of skilled workers.  And with no signs of slowing anytime soon – in residential, commercial, and industrial construction – the workforce bottleneck is expected to continue, if not worsen going forward.

CBRE’s second quarter numbers are in, and they are staggering.  The light industrial market currently has 7.9 million square feet (msf) under construction.  The retail market continues to see rental rates rise with 2.7 msf is under construction.  Multi-family has seen their rates rise as well with $1.03 per sf and 91% occupancy, which has prompted many Class C projects in urban areas being scrapped in favor of Class A.  And the superstar office market remains on fire with 16.3 msf under construction, with 23 new buildings (5.8 msf) breaking ground just in the second quarter and 58% of those building are owner occupied.

Auto sales, an indicator of consumer confidence, are breaking records.  Total sales for the 12 months ending in June 2014 were the highest for any 12 month period on record, according to InfoNation.  And the Q2 Houston sales were the highest for any quarter since 2001.  While this pace of auto sales is probably unsustainable, it indicates that the consumer confidence in Houston is high and that Houstonians feel comfortable that they will have a job for the near future.

Speaking of employment, the Houston employment rate, now at 5.4%, has steadily improved over the last four years.  However, the most recent numbers show that construction employment has flattened out.  In talking to contractors, the inability to find qualified workers may be responsible for the lag.  Construction has yet to regain the employment levels seen pre-recession, and rising labor costs can continue to be expected.

Also seeing a downtick is the Architecture Billings Index (ABI).  While the national ABI, a leading indicator of construction, improved, the southern region, which includes Texas, dropped markedly for June.  After digging deeper, the dip is due to slowing residential construction, not commercial.  The Houston Purchasing Managers Index (PMI) also showed a sharp drop this month, due primarily to a large number of respondents switching from an optimistic view to a neutral one, as reported by the Institute for Supply Management.  It is too early to tell whether these are indicators of a slowing economy, but it is worth keeping an eye on in the months ahead.

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