Construction Spending, Labor & Materials Outlook Austin Chapter-AGC March 17, 2014 Ken Simonson Chief Economist, AGC of America [email protected]

Construction Spending, Labor & Materials Outlook

Austin Chapter-AGCMarch 17, 2014Ken Simonson

Chief Economist, AGC of [email protected]

2

2014 AGC Construction Outlook Survey ResultsCompared to 2013, do you expect the available dollar volume of project you compete for in 2014 to be:

Category Net Higher Lower SameManufacturing +28% 44% 16% 40%Retail, warehouse, lodging +28 43 16 41Private office +28 43 14 43Hospital/higher education +25 42 17 41Power +25 40 15 45Water/sewer +17 35 17 48Highway +10 31 21 49Public buildings +5 30 25 45K-12 school +4 29 25 47Other transportation +3 24 21 55Marine construction -2% 18 21 61

Source: AGC Outlook Survey, January 2014

3

2006 2007 2008 2009 2010 2011 2012 2013 2014-30%

-15%

0%

15%

30%

12 m

onth

n%

cha

nge

12 m

onth

n%

cha

nge

2006 2007 2008 2009 2010 2011 2012 2013 2014$0

$250,000

$500,000

$750,000

$1,000,000

$1,250,000

Billi

on $

Construction spending (seasonally adjusted annual rate—SAAR)Total construction, Jan. 2006-Jan. 2014 (billion $, SAAR)

12-month % change, Jan. 2006-Jan. 2014

Public: 2.5%

Private Nonresidential: 10%

Private Residential: 15%

Total: 9%

Source: Census Bureau construction spending reports

$943 billion

4

Construction is growing, but unevenly3 trends helping many sectors and regions:• ‘Shale gale’ • Panama Canal expansion• Residential revival

3 trends holding down construction growth:• Government spends less on schools, infrastructure• Consumers switch from stores to online buying• Employers shrink office space per employee

Source: Author

One (or many) bright spot(s): the shale ‘gale’

5Source: U.S. Energy Information Administration

Haynesville

Eagle Ford

Bakken

Marcellus

Niobrara

Permian

6

Shale’s direct and indirect impacts on construction

• Onsite: Each well requires access road, site prep, pad, storage pond, support structures, pipes

• Nearby: Products, water require trucking, rail, pipeline, processing

• Local spending by drilling firms, workers, royalty holders• Upstream: orders for fracking sand, rigs, compressors,

pumps, pipe, tanks, trucks, railcars, processing facilities • Downstream: Petrochemical, power, steel plants; LNG

export terminals, fueling stations; LNG-powered vehicles• Losers: coal; maybe wind, solar, nuclear & suppliers

Source: Author

7

U.S. ports affected by Panama Canal expansion

Source: U.S. Army Corps of Engineers

Baltimore

NY-NJ

Norfolk

Seattle & Tacoma

Charleston San Diego

Oakland

Miami

Savannah Jacksonville

Mobile

Columbia River at Mouth, OR & WA

Los Angeles/ Long Beach

New OrleansHouston

8

Panama Canal expansion’s impacts on construction

• Ports: investing in dredging, piers, cranes, land access• Nearby: Storage, warehouse, trucking, rail facilities• Bridge, tunnel, highway improvements• Inland: possible changes in distribution, manufacturing

Source: Author

9

2011 2012 2013 2014-15%

0%

15%

30%

45%

60%

12 m

onth

n%

cha

nge

2011 2012 2013 2014$0

$75,000

$150,000

$225,000

$300,000

$375,000

Billi

on $

Private residential spending is still rising—for nowPrivate residential spending, Jan. 2011-January 2014(billion $, SAAR)

Multi-family

Single family

Improvements

12-month % change, Jan. 2011-January 2014

Improvements: 4%

Single family: 21%

Multi-family: 28%

Total: 15%


10

Housing outlook• SF: rising for now but tight credit, fear of lock-in,

demographic shifts may limit increases• MF: Upturn should last into 2015– Vacancy rates near multi-year lows in most cities– Preference for urban living, add to demand– Condos have been slower to revive than rentals– Government-subsidized market likely to worsen

• Improvements: should benefit from rising SF sales

Source: Author

11

1/14 Total 2013 vs. 2012 2014 Forecast

Nonresidential $579billion -2% 4-8%Highway and street 88 1 near 0Power (incl. oil & gas structures, pipelines) 84 -11 10+Educational 78 -6 0 to -5Commercial (retail, warehouse, farm) 52 6 0 to 5Manufacturing 51 5 10+Transportation 43 8 2 to 5Office 42 0 near 0Health care 39 -3 near 0Communication 21 -11Sewage and waste disposal 20 -1Lodging 17 26 10+Other (Amusement & recreation; water; public safety; conservation; religious): 8% of total

-3

Nonres segments, 2013 & 2014 forecast (billion $, SAAR)

Source: Census Bureau construction spending report; Author’s forecast

12

2008 2009 2010 2011 2012 2013 2014$0

$20,000

$40,000

$60,000

$80,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013 2014$0

$20,000

$40,000

$60,000

$80,000

Construction spending: developer-financed (billion $, SAAR)


Retail (private)

Warehouse (private)

Office (82% private)

Lodging (private)

Latest 12-mo. change: 14%

Latest 12-mo. change: 33% Latest 12-mo. change: 48%

Latest 12-mo. change: 11% (private 17%; public -10%)

Private

Public

Total

13

2008 2009 2010 2011 2012 2013 2014$0

$20,000$40,000$60,000$80,000

$100,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000$20,000$30,000$40,000$50,000

2008 2009 2010 2011 2012 2013 2014$0

$20,000$40,000$60,000$80,000

$100,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000$20,000$30,000$40,000$50,000

Construction spending: industrial, heavy (billion $, SAAR)


Power (85% private)

Transportation facilities (72% public)

Manufacturing (99% private)

Public & private transportation facilities

Latest 12-mo. change: 2% (private 1%; public 9%)


Latest 12-mo. change: -7%

Latest 12-mo. change: (private 8%; public 8%)

Public

Private

14

2008 2009 2010 2011 2012 2013 2014$0

$20,000$40,000$60,000$80,000

$100,000Total education (79% public)

2008 2009 2010 2011 2012 2013 2014$0

$10,000$20,000$30,000$40,000$50,000

2008 2009 2010 2011 2012 2013 2014$0

$20,000$40,000$60,000$80,000

$100,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000$20,000$30,000$40,000$50,000

Construction spending: institutional (private + state/local)


Healthcare (75% private)

Institutional

Hospitals (private, state & local)

Latest 12-mo. change: -2%

Latest 12-mo. change: -4% Latest 12-mo. change: (private -6%; public -5%)

S/L PreK-12

Private

S/L higher ed

S/L

Private

Latest 12-mo. Change: (Private 2%; State/Local higher -7%; State/Local PreK-12 -2%)

15

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013 2014$0

$30,000

$60,000

$90,000

Construction spending: public works (billion $, SAAR)


Highways (99.96% public)

Amusement & recreation (55% public)

Sewage/waste (99% public)

Water supply (94% public)


Latest 12-mo. change: -4% Latest 12-mo. change: -8%

16

2008 2009 2010 2011 2012 2013 2014$0

$20,000

$40,000

$60,000

$80,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013 2014$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013 2014$0

$20,000

$40,000

$60,000

$80,000

Construction spending: developer-financed (billion $, SAAR)


Retail (private)

Warehouse (private)

Office (82% private)

Lodging (private)



Latest 12-mo. change: 11% (private 17%; public -10%)

Private

Public

Total

4%

0.2%

7%

5%

-0.3%

-2%

8%

-2%

4%

6%

1%

5%

5%

0%

2%

-1%

2%

7%

2%

4%

1%

-0.3%

-0.1%

2%

-5%

-3%

-1%

18% 1%

-0.2%

2%

-3%

3%

-2%

7%

8%

2%

-1%

3%

1%

HI5%

5%

VT4%

CT12%

RI5%

DE-1%

NJ-3%

MD3%

DC-5%

NH2%

Over -10% -5.1% to -10% -0.1% to -5% 0.1% to 5%

MA3%

State construction employment change (U.S.: 2.1%) 12/12 to 12/13: 34 states up, 15+ DC down, 1 unchanged

5.1% to 10% Over 10%

Shading based on unrounded numbers

0%

Source: BLS state and regional employment report

1990 1995 2000 2005 20104,000

5,000

6,000

7,000

8,000

Aug. ‘97

Construction Employment in United States, 1/90-11/13(seasonally adjusted; shading = recessions)

In th

ousa

nds

1990 1995 2000 2005 20100

200

400

600

800

Construction Employment in Texas, 1/90-11/13(seasonally adjusted; shading = recessions)

In th

ousa

nds

Source: BLS

2008 2009 2010 2011 2012 2013-3000%

-2000%

-1000%

0%

1000%

12-m

onth

% c

hang

e Texas 2.2%34 out of 51

U.S. 3.1%

Construction Employment Change from Year Ago1/08-11/13 (seasonally adjusted)

Source: BLS

20

Construction employment, Dec. ’13 vs. peak• US: construction -25% (-1.9 million) below Apr. ‘06 peak• States: LA & ND at new peak in 2013, 45 states > 10% below• Metros: only 21 of 339 at new Dec. peak, not seas. adjusted

F

Peak in 2013

Within 10% of peak

>10% below peak

Source: Author, from BLS national and state & area employment data (www.bls.gov/ces. www.bls.gov/sae)

http://www.bls.gov/ces

http://www.bls.gov/sae

22

Spending +25% but jobs only +9%. How do they do it?• Contractors charging slightly more: PPI +9% (industrial buildings)• More hours per worker: aggregate hours +12% (+3% per employee)• Implication: further spending growth will trigger bigger pickup in

hiring—but will workers be available?

Construction spending, labor & prices, 1/11-1/14

Spending Employment0%

5%

10%

15%

20%

25% 25%

9%

% c

hang

e 1/

11-1

/14

Spending Total hours worked0%

5%

10%

15%

20%

25%

12%%

cha

nge

1/11

-1/1

4

25% total

9% price change

15% real

Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

23

February '11 February '140%

5%

10%

15%

20%

25%

21.8%

12.8%9.5%

7.0%

Construction Total

Construction vs. overall (un)employment, 2/11-2/14

• Construction unemployment fell sharply in past 3 years• But industry employment has risen modestly• Thus, workers are leaving for other sectors, school, retiring

Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

Unemployment rates(Not seasonally adjusted, Feb. 2011-Feb. 2014)

Nonfarm empl.

Const. empl.

Const. unem.

6,678,000

477,000

-834,000

Change in unemployment & employment(Not seasonally adjusted, Feb. 2011-Feb. 2014)

24

Hardest positions to fill(% of respondents who are having trouble filling)

Source: AGC Worker Shortage Survey, Aug. 2013

Craft

Equipment operators 49%Carpenters 44Laborers 37

Professional

Project managers/supervisors 49%Estimators 41

25

12/10 2011 2012 2013100

102

104

106

108

110

Dec

embe

r 201

0 =

100

Material & labor costs vs. office bid prices since 12/10

Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI)

ECI12/12-12/13: 2.0%

PPI for offices2/13-2/14: 2.9%

PPI for materials2/13-2/14: 0.6%

26

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

2011 2012 2013 201480

100

120

140

Producer price indexes for key inputs, 1/11-2/14 (Jan. 2011=100)

Source: Author, based on BLS producer price index reports

Steel mill products

Gypsum products

Copper & brass mill shapes

Lumber & plywood

Latest 1-mo. change: 0.7%, 12-mo.: 2%


Latest 1-mo. change: -1.5%, 12-mo.: -7%


27

2011 2012 2013 201485

100

115

130

2011 2012 2013 201485

100

115

130

2011 2012 2013 201485

100

115

130

2011 2012 2013 201485

100

115

130

Producer price indexes for key inputs, 1/11-2/14 (Jan. 2011=100)

Source: Author, based on BLS producer price index reports

No. 2 diesel fuel

Plastic construction products

Concrete products

Asphalt paving mixtures & blocks

Latest 1-mo. change: 4.4%, 12-mo.: -6%



Latest 1-mo. change: -0.2%, 12-mo.: 2%

28

Best prospects for 2014• Multifamily• Manufacturing, esp. petrochemical, oil/gas supply• Oil & gas fields• Pipelines• Warehouses• Lodging (hotels & resorts)• Rail

Source: Author

29

Trends: 2014-2017• Total construction spending: +6% to +10% per year– less SF housing, retail; declining public spending– new drivers: shale-based gas & oil; Panama Canal

widening; more elderly & kids, fewer young adults• Materials costs: +1 to +3% (similar to CPI); rare spikes• Labor costs: +2.5% to + 5%• Labor supply: widespread shortages possible due to

retirements, competition from other sectors, fewer vets

Source: Author

30

Summary for 2013, 2014-17

Source: 2012: Census, BLS; 2013-17: Author’s ests.

2012actual

2013actual

2014-17ann. avg.forecast

Total spending 9% 5% 6-10%

Private – residential 15% 18% 1-10%

– nonresidential 16% -1% 1-10%

Public -3% -3% 0 or less

Materials PPI 1.4% 1.3% 1-3%; rare spikes

Employment cost index 1.6% 2.0% 2.5-5%

31

AGC economic resources (email [email protected])

• The Data DIGest: weekly 1-page email (subscribe at www.agc.org/datadigest)

• monthly press releases: spending; PPI; national, state, metro employment

• state and metro data, fact sheets• webinar April 17 with AIA, Reed• website: http://www.agc.org/Economics

mailto:[email protected]

http://www.agc.org/datadigest

http://www.agc.org/Economics

Documents

Construction Spending, Labor & Materials Outlook Austin Chapter-AGC March 17, 2014 Ken Simonson Chief Economist, AGC of America [email protected]