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AGC's Data DIGest: November 5-11, 2019

AGC, ConstructConnect, AIA, Dodge post varied forecasts for 2020; wage growth stays flat

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Tis the season for 2020 forecasts. The chief economists for AGC, the American Institute of Architects (AIA) and ConstructConnect discussed the current state of design and construction and the outlook for 2020 in a webinar on Wednesday. AGC’s Ken Simonson predicted that construction spending would increase 1% to 5% from 2019 to 2020 (without adjusting for price change), compared with a year-to-date (YTD) decline of 2% from the first nine months of 2018 to the same period of 2019. He forecasted a gain of 2-7% for residential construction (compared to a YTD decrease of 2%) and 0-4% each for private nonresidential and public construction (compared to -0.6% and 6% YTD, respectively). ConstructConnect’s Alex Carrick predicted that the value of construction starts would slip 1.6% in 2020, compared with a forecasted 2.6% drop in 2019, with residential starts sliding 8.3% (vs. -6.8% in 2019); nonresidential building starts edging up 0.9% (vs. -3.7%) and civil starts rising 5.9% (vs. 8.6%). AIA’s Kermit Baker did not present his own forecast but pointed out that the Architecture Billings Index has slowed this year to breakeven or below for all practice specialties: an average of 49.6 YTD through September for multifamily (from 53.4 in 2018 and 52.9 in 2017), 49.2 for commercial/industrial (from 52.1 in 2018 and 52.8 in 2017) and 49.3 for institutional practices (from 52.3 in 2018 and 52.0 in 2017). A score below 50 indicates that more respondents to AIA’s monthly survey a decline rather than an increase in their billings compared to the month before, after seasonal adjustment. AIA says the ABI “leads nonresidential construction activity by approximately 9-12 months.”

Dodge Data & Analytics released its 2020 Dodge Construction Outlook on October 31. “The report predicts that total U.S. construction starts will slip…4% from the 2019 estimated level of activity….‘The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,’ stated Richard Branch, Chief Economist… ‘Easing economic growth driven by mounting trade tensions and lack of skilled labor will lead to a broad-based but orderly pullback in construction starts in 2020. After increasing 3% in 2018 construction starts dipped an estimated 1% in 2019 and will fall 4% in 2020….By major construction sector, the dollar value of starts for residential buildings will be down 6%, while starts for both nonresidential buildings and nonbuilding construction will drop 3%.”

Two recent reports indicate construction wage increases are holding virtually unchanged from recent years. PAS released its latest Contractor Compensation Quarterly on October 31. Open-shop “contractors anticipate skilled-craft hourly wage increases of 3.41% in 2019 (3.49% excluding zeros). Actual increases for 2018 were 3.28% (including zeros) and 3.48% (excluding zeros). These increases are across the board for all craft, contractor types, sizes, and regions of the country. WorldatWork reports 2019 actual construction increases at 3.7% for nonexempt hourly nonunion positions. Similar to last year, we think they’re closer to the correct percentage than our 3.49% forecast. However, historically, it’s not unusual for our projected numbers to be slightly lower than the actual year-end figure.” A chart shows that increases (omitting 0% increases) have averaged 3.4-3.6% each year since 2013. The Construction Labor Research Council reported that its analysis of settlements for union crafts in construction showed the “first year of new settlements agreed upon through the third quarter [Q3] of 2019…had an average increase of 2.8% [, 0.1 percentage point less] than in 2018. With the modest exception of 2019, the average increase has slowly and steadily risen since 2010/11, from 1.7% in 2010 to 2.8% in September 2019. The gradual trend is forecasted to extend to 3.2% by 2021.”

There were 338,000 job openings in construction at the end of September, not seasonally adjusted, an increase of 39,000 (13%) from September 2018 and the highest total for September since the series began in December 2000, BLS reported on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. The industry hired 406,000 employees in September, not seasonally adjusted, 53,000 (15%) more than in September 2018 and the highest September total since 2005. The record-high job openings in construction at the end of September—despite unusually elevated hiring—together with the low unemployment rate in October for both construction (4.0%, not seasonally adjusted, as BLS reported on November 1) and overall (3.6%, seasonally adjusted, close to the 50-year low of 3.5% set in September), underscore the challenge that contractors face in finding and retaining acceptable workers to hire. While overall nonfarm job openings have declined from year-ago levels for the past four months, construction openings have set series records for each month for 16 consecutive months.

The Bureau of Economic Analysis (BEA) posted two reports recently that show the contribution construction made to the economy in Q2. On October 29 BEA posted the change in inflation-adjusted (real) value added by industry at a seasonally adjusted annual rate from Q1 to Q2. Overall gross domestic product (real GDP) increased 2.0%, following a 3.1% increase in Q1. Real value added for construction dipped 0.3%, following a 3.8% increase. The price index for value added in construction jumped 6.2%, compared to 2.4% for the price index for GDP. Real GDP by state increased 2.0% at a seasonally adjusted annual rate from Q1 to Q2, BEA reported on Thursday. Construction subtracted 0.01 percentage point from that growth. Real GDP increased in every state but construction made a positive contribution in only 19 states, negative in 29, and neutral in two plus the District of Columbia. The industry’s contribution ranged from 0.57 percentage points in North Dakota (out of real GDP growth of 1.8%) to -0.70 percentage points in West Virginia (out of real GDP growth of 1.7%).

Data DIGest is a weekly summary of economic news. All rights reserved. Sign up at http://store.agc.org. Editor: Ken Simonson, Chief Economist, AGC, simonsonk@agc.org.