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AGC's Data DIGest: March 1-8, 2021

Employment slumps in February; spending climbs in January; Dodge Momentum Index strengthens

Nonfarm payroll construction employment, seasonally adjusted, slumped in February by 61,000 to a four-month low of 7,340,000, the Bureau of Labor Statistics (BLS) reported on Friday. The total was down 308,000 (-4.0%) year-over-year (y/y) from the pre-pandemic peak in February 2020. Some of the losses were most likely attributable to extreme weather conditions that halted outdoor projects or delayed hiring for new starts. However, both residential and nonresidential employment gains have generally slowed (or turned negative) since October 2020. An AGC analysis of the data found that nonresidential construction employment shrank by 60,800 (-1.4%) for the month and 316,000 (-6.8%) y/y. Within that sector, employment in heavy and civil engineering construction—the segment most affected by severe winter weather—fell by 20,800 (2.0%) for the month and 78,000 y/y (-7.0%). Nonresidential specialty trade contractors shed 36,700 employees (-1.4%) in February and 189,000 (-7.0%) y/y. Nonresidential building contractors lost 3,300 jobs (-0.4%) in February and 49,000 (-5.7%) y/y. Residential construction employment, comprising residential building and residential specialty trade contractors, dipped by 200 jobs (-0.01%) in February and increased by 8,000 (0.3%) y/y. After a decline of 1.1 million jobs (-15%) from February to April 2020, residential employment has recouped all of the lost jobs but nonresidential firms have added back only 51% of their decrease. The industry’s unemployment rate in February was 9.6%, not seasonally adjusted, with 921,000 former construction workers idled, compared to the year-earlier 5.5% rate and 531,000 workers, respectively.

Construction spending in January increased 1.7% from December and 5.8% from January 2020 to a seasonally adjusted annual rate of $1.52 trillion, the Census Bureau reported on March 1. An indeterminable portion of the monthly increase reflects unseasonably mild weather in January 2020 and recent cost increases for materials, rather than a pickup in the number of projects. The disparity widened further between strong residential spending growth and fluctuating nonresidential activity. Private residential construction spending rose for the eighth month in a row, climbing 2.5% for the month and 21% y/y, with y/y gains of 24% for new single-family construction, 17% for new multifamily, and 18% for owner-occupied improvements. Private nonresidential construction spending ended a six-month skid, gaining 0.4% for the month, but remained at the second-lowest level in more than three years and 10% below the January 2020 level. All 11 components declined y/y. The largest private nonresidential segment (ranked by January spending)—power—slumped 10% y/y (including electric power, -12%, and oil and gas field structures and pipelines, -5.5%), followed by commercial, -8.3% (including warehouse, 2.4%, and retail, -20%); office, -4.4%; and manufacturing, -15%. Public construction spending climbed 1.7% for the month and 2.9% y/y. The largest public segment, highway and street construction, rose 6.5% y/y. Public education construction rose 0.9% (primary/secondary, 7.3%, and higher education, -13%). Lodging had the largest y/y decrease, -22%.

The Dodge Momentum Index rose 7.1% in February from the revised January reading to “the highest levels in nearly three years as a result of a surge in large projects that entered planning,” Dodge Data & Analytics reported on Friday. The index “is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year….Institutional planning projects in February were concentrated in large hospitals and labs, while commercial planning projects primarily included data centers, warehouses, and office projects. Compared to a year ago, the overall…index was up 9.2%; the commercial component was 15.2% higher, while the institutional component was down 3.3%.”

On Wednesday, the Federal Reserve released the latest “Beige Book,” a compilation of informal soundings of business conditions in each of the 12 Fed districts, based on information collected January 5-February 22. The U.S. summary noted, “On balance, commercial real estate conditions in the hotel, retail, and office sectors deteriorated somewhat, while activity in the multifamily sector remained steady and the industrial segment continued to strengthen.” AGC posted construction-related excerpts from each district. Several included comments similar to this one from the New York Fed: “Contacts in the construction industry noted widespread weakening in activity, possibly exacerbated by harsh weather, and they remain somewhat pessimistic about the near-term outlook. Contacts continued to report sharp increases in the cost of materials, as well as supply disruptions.”

On Wednesday, the Institute for Supply Management issued the February “Services ISM Report On Business,” a monthly survey of purchasing executives. Items relevant to construction that were reported in short supply include construction contractors (for the fifth month in a row) and labor (2 months in a row), insulation, oriented strand board (OSB) (2 months), personal protective equipment (PPE) (13 months), PVC products, and steel products (3 months). Items relevant to construction that were reported up in price include aluminum, copper (2 months) and copper products, diesel fuel (3 months), freight (3 months), OSB (3 months) and lumber (2 months), PPE (13 months, but also reported down in price), PVC products (6 months), steel (6 months) and steel products (2 months). Among 18 sectors covered, construction was one of 17 reporting growth; the only exception was real estate, rental and leasing. Construction was one of 14 sectors reporting an increase in business activity, new orders (11 sectors), employment (11 sectors), slower supplier deliveries (15 sectors), prices paid (16 sectors), and backlog of orders (8 sectors).

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.