US Construction Spending, Labor and Materials Outlook

AGC National & Chapter Leadership Conference

Washington, DC, September 24, 2017

Ken Simonson

Chief Economist, AGC of America

simonsonk@agc.org

Construction spending & employment, 2006-2017

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

2006 2008 2010 2012 2014 2016

0.0

1.5

3.0

4.5

6.0

7.5

9.0

2006 2008 2010 2012 2014 2016

2

Total spending, Feb. ‘06 (peak)-July ‘17trillion $, seasonally adjusted annual rate

Total employment, Apr. ’06 (peak)-July ‘17millions, seasonally adjusted

$1.21 trillion(0.1% above2006 peak)

7.7 million

6.9 million

Private Residential

Total

Public

Private nonresidential

Nonresidential (6% below peak)

Residential (15% below peak)

Total (11% below peak)

July 2016-July 2017: total 2%private res. 12%, private nonres. -4%, public -6%

July 2016-July 2017: total 2.8%residential 4.6%, nonresidential 1.8%

Source: spending--U.S. Census Bureau; employment--Bureau of Labor Statistics

-5%

0%

5%

10%

2015 2016 2017

12

-mo

nth

% c

han

ge

Construction spending & employment, 2015-2017

3

Non-res: 1.8%

Residential: 4.6%

Total: 2.8%

Source: spending--U.S. Census Bureau; employment--Bureau of Labor Statistics

Construction employment 12-month % change: Jan. 2015 –July 2017

-10%

0%

10%

20%

30%

2015 2016 2017

12

-mo

nth

% c

han

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Total public: -5.6%

Private res: 11.6%

Private non-res: -3.6%

Total: 1.8%

Construction spending 12-month % change: Jan. 2015 –July 2017

in construction

Possible storm/flood impacts on construction

• Immediate demand for plywood, wallboard, laborers, trucks

• Increased demand for new single- and multifamily housing; reconstruction of commercial, public buildings, infrastructure

• But most rebuilding will take years to get funding, design, regulatory approvals

• Meanwhile, businesses and individuals who would have built cancel or defer projects that they can’t afford/don’t need; public $ is reallocated

• Net: selectively higher materials, labor costs; little change in spending

4

Source: Author

Jan.-July’17 vs. ’16

Full-year 2017 forecast

2018 forecast

Nonresidential total (public+private) 0% 1-3% 1-5%Power (incl. oil & gas field structures, pipelines) -4 -2 to 2 positive

Highway and street -4 -4 to 0 flat

Educational 1 0 to 3 positive

Commercial (retail, warehouse, farm) 16 8 to 12 less pos.

Manufacturing -10 -7 to -10 flat

Office 11 7 to 10 less pos.

Transportation -1 -3 to 1 small pos.

Health care 1 -1 to 2 small pos.

Lodging 6 1 to 5 negative

Sewage & waste disposal -20 -15 to -20

Other--amusement; communication; religious; public safety; conservation; water: 11% of total -1 -2 to 1

Nonresidential segments: year-to-date change, 2017-18 forecast

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

5

'15 '16 '17

$0

$5

$10

$15

$20

$25

'08 '10 '12 '14 '15 '16 '17

Construction spending: industrial, heavyannual total, 2008-14; monthly (seasonally adjusted annual rate), 1/15-7/17; billion $

6

$0

$25

$50

$75

$100

'08'10'12'14'15 '16 '17

Manufacturing (99.4% private in 2016)

July '16-July '17 change: -16% (chemical -10%; other -21%)

Other

Chemical

Communication (99.3% private in 2016)

July '16-July '17 change: 0.5%

Source: U.S. Census Bureau construction spending report

'15 '16 '17

$0

$5

$10

$15

$20

$25

'08'10'12'14

Amusement & recreation (54% private in 2016)

July '16-July '17 change: 3% (private 8%; public -3%)

Public

Private

Power (91% private in 2016)

$0

$30

$60

$90

$120

'08'10'12'14

July '16-July '17 change: -9% (oil & gas 6%; electric -13%)

electric

oil & gas

Key points: power & energy, mfg, amusement & recreation

• Solar, wind power are growing again; expect more gas-fired plants, natural gas pipelines into ‘18

• Manufacturing construction recovery in ‘18 depends on policy impacts, especially trade and tax

• Amusement & recreation spending is very “lumpy”—a few big stadiums at irregular intervals; but funding for local, state, federal parks keeps eroding

7

Source: Author

'15 '16 '17

$0

$30

$60

$90

$120

'08'10'12'14

$0

$10

$20

$30

'08'10'12'14 '15 '16 '17

Construction spending: public worksannual total, 2008-14; monthly (seasonally adjusted annual rate), 1/15-7/17; billion $

8

$0

$10

$20

$30

'08 '10 '12 '14'15 '16 '17

Highways (99.7% public in 2016)

July '16-July '17 change: -5%

Sewage/waste (98% public in 2016)

July '16-July '17 change: -13%

Water supply (98% public in 2016)

July '16-July '17 change: -11%

Source: U.S. Census Bureau construction spending report

$0

$10

$20

$30

$40

$50

'08 '10 '12 '14 '15 '16 '17

Transportation facilities (69% public in 2016)

July '16-July '17 change: -4% (private 4%; public -8%)

public

private

Key points: roads, transportation, sewer/water

• State highway funding and P3s gradually increasing but federal funding likely to be flat through 2018

• Many new and ongoing airport projects but no increase likely in transit construction funding; storms may trigger port rebuilding

• Huge declines in water & sewer spending in 2017 hard to explain and unlikely to be repeated

9

Source: Author

$0

$25

$50

$75

$100

'08 '10 '12 '14

$0

$10

$20

$30

$40

$50

'08 '10 '12 '14 '15 '16 '17

Construction spending: education, health careannual total, 2008-14; monthly (seasonally adjusted annual rate), 1/15-7/17; billion $

10

'15 '16 '17

Education: state/local K-12, S/L higher; private

July '16-July '17 change: -4% (private -9%;state/local preK-12 -5%; state/local higher ed 4%)

S/L preK-12

Private

S/L higher ed

Health care: (private hospital, S/L hospital, other)

July '16-July '17 change : -1% (private hospital -6%; S/L hospital 12%; other: special care, med. office, federal 6%)

S/L hospital

Private hospital

Source: U.S. Census Bureau construction spending report

Total (78% public)

Total (76% private)

Other

Key points: education & health care

• Bond issues passed in 2014-16 should boost preK-12 projects through 2018

• Higher-ed enrollment declined 21% from 2011 to 2016, so colleges need fewer dorms & classrooms; apts. (multifamily) replacing dorms (educational construction)

• Hospitals may resume spending in 2018 if Affordable Care Act is left intact; demand should continue for special care facilities

11

Source: Author

'15 '16 '17

$0

$20

$40

$60

$80

'08'10'12'14

Construction spending: developer-financedannual total, 2008-14; monthly (seasonally adjusted annual rate), 1/15-7/17; billion $

12

$0

$20

$40

$60

$80

'08 '10 '12 '14 '15 '16 '17

$0

$10

$20

$30

$40

'08'10'12'14'15 '16 '17

Retail (private)

July '16-July '17 change: 0.4%

Office (88% private in 2016)

July '16-July '17 change: -0.2% (private-0.1%; public -0.4%)

Public

Private

Total

Warehouse (private)

July '16-July '17 change: 25%

Lodging (private)

Source: U.S. Census Bureau construction spending report

$0

$10

$20

$30

$40

'08'10'12'14 '15 '16 '17July '16-July '17 change: -0.1%

Key points: retail, warehouse, office, hotel, data centers

• Retail now tied to mixed-use buildings & renovations, not standalone stores or shopping centers; massive store closings imply downturn in ‘18

• Warehouse growth is still benefiting from e-commerce; more local than huge regional distribution centers likely in future

• Office growth is slowing; employment still rising but space per worker is shrinking; more urban & renovation work than suburban office parks

• Hotel: flat since mid-2016; likely to drop as occupancy rates slip

• Data centers remain a strong niche but no data available on how strong

13

Source: Author

$0

$100

$200

$300

$400

$500

$600

$700

'06 '08 '10 '12 '14

Private residential spending: steady single-family growth, slower multifamilyannual total, 2006-14; monthly (seasonally adjusted annual rate), 1/15-7/17; billion $

14

'15 '16 '17

Total

Multifamily

Source: U.S. Census Bureau construction spending report

-20%

0%

20%

40%

2015 2016 2017

12

mo

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Improvements: 16%

Single-family: 10%

Multifamily: 3%

Total: 12%

12-month % change: Jan. 2015-July 2017

Total

Single-family

Improvements

7/16-7/17:

Private residential spending forecast--2017: 7-9%; 2018: 6-9%

• SF: 7-9% in 2017 & 2018; ongoing job gains add to demand; but student debt and other credit impairments, limited supply of lots and labor will limit growth

• MF: 3-5% in 2017; near 0 in 2018

– occupancy rates, rents have leveled off; starts, permits are down from 2016

– millennials are staying longer in cities, denser suburbs where MF construction is bigger share of market than in outer suburbs

– nearly all MF construction is rental, not condo; more high-rises

• Improvements: 10-15% in 2017 & 2018; unpredictable because Census lacks reliable data source; post-storm reconstruction may boost totals

Source: Author

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Population change by state, July 2015-July 2016 (U.S.: 0.70%)

16

AK 0.6%

1.8%

1.7%

0.7%

1.8%

1.0%

-0.2%

2.0%

1.7%

1.7%

0.03%

0.1%

0.9%

0.7%

0.02%

0.4%

1.6%

0.7%

0.4%

0.3%

0.3%

0.2%

-0.3%

0.1%

0.3%

0.3%

-0.02% 0.2%

0.1%

-0.01%

-0.1%

0.5%

1.1%

1.1%

1.8%

0.2%

-0.5%

0.3%

2.0%

HI0.2%

1.4%

VT-0.2%

CT-0.2%

RI0.1%

DE0.8%

NJ0.2%

MD0.4%

DC1.6%

NH0.4%

decrease 0-0.49% 0.5-0.99% 1.0-1.49%

MA0.4%

1.5%+

Source: U.S. Census Bureau

0.9%

CT0.2%

-3%

4%

13%

7%

4%

-0.4%

-2%

13%

1%

0.1%

5%

0%

-6%

-2%

1%

5%

2%

6%

-5%

-0.2%

10%

1%

-2%

4%

5%

4%

-4% 5%

3%

1%

1%

2%

-1%

8%

9%

4%

3%

7%

HI-3%

3%

VT-3%

MD3%

DC2%

NH12%

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

MA3%

State construction employment change (U.S.: 2.8%) 7/16 to 7/17: 36 states + DC up, 1 unchanged, 13 down

17

5.1% to 10% Over 10%

Shading based on unrounded numbers

0%

Source: BLS state and regional employment report

4%NJ4%

DE2%

RI13%

-1%

Metro construction employment change 7/16 to 7/17: 259 metros up (72%), 41 unchanged, 58 down (16%)

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Hardest positions to fill

28%

32%

48%

51%

50%

53%

58%

70%

0% 25% 50% 75%

Engineers

Estimators

Project mgrs/supervisors

Concrete workers

Plumbers

Electricians, bricklayers

Carpenters

All hourly craft positions

% of respondents who are having trouble filling

19

Source: AGC Member Survey, August 2016

20%

24%

50%

Increasing contributions/benefits

Providing incentives/bonuses

Raising base pay

Hourly workers

How contractors are coping with worker shortages

20

0% 10% 20% 30% 40% 50%

Building information modeling 7%

Offsite prefabrication 11%

Lean construction 15%

Unions 17%

Labor-saving equip., tools, mach. 22%

Craft labor suppliers 22%

Engage w/ career-building prog. 27%

Subcontractors 39%

In-house training 46%

Overtime hours 47%

0%

1%

2%

3%

4%

5%

6%

2001 2004 2007 2010 2013 2016

Production and nonsupervisory employees: avg. hourly earnings, 12-mo. % change, 6/01-6/17

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2001 2003 2005 2007 2009 2011 2013 2015 2017

Construction hires, Jun. 2001-Jun. 2017

Construction workforce indicators (not seasonally adjusted)

21

0

500,000

1,000,000

1,500,000

2,000,000

2001 2004 2007 2010 2013 2016

Unemployment, Jun. 2001-Jun. 2017

0

100,000

200,000

300,000

400,000

500,000

600,000

2001 2004 2007 2010 2013 2016

Job openings, Jun. 2001-Jun. 2017

Source: Bureau of Labor Statistics

80

90

100

110

2015 2016 2017

80

90

100

110

2015 2016 2017

Latest 1-mo. change: 8.7%, 12-mo.: 20%

80

90

100

110

2015 2016 2017

Producer price indexes for key inputs, 1/15-7/17 (Jan. 2015=100)

22

Copper & brass mill shapes Aluminum mill shapes

Latest 1-mo. change: 1.1%, 12-mo.: 15% Latest 1-mo. change: -1.7%, 12-mo.: 7%

Diesel fuel

80

90

100

110

2015 2016 2017

Steel mill products

Latest 1-mo. change: 0.3%, 12-mo.: 10%

Source: Bureau of Labor Statistics

80

90

100

110

2015 2016 2017

80

90

100

110

2015 2016 2017

Paving mixtures

Producer price indexes for key inputs, 1/15-7/17 (Jan. 2015=100)

23

Concrete products

Latest 1-mo. change: 0.7%, 12-mo.: 10%

Latest 1-mo. change: 0.2%, 12-mo.: 3%

80

90

100

110

2015 2016 2017

Flat glass

Latest 1-mo. change: -0.1%, 12-mo.: 0%

Source: Bureau of Labor Statistics

80

90

100

110

2015 2016 2017

Gypsum products

Latest 1-mo. change: 0.2%, 12-mo.: 9%

-6%

-4%

-2%

0%

2%

4%

6%

2015 2016 2017

12

mo

nth

% c

han

ge

Latest 12-mo. change: PPI for nonresidential building: 3.1%; PPI for inputs to construction, goods: 3.0%; average hourly earnings for all construction employees: 2.6%

Change in costs for buildings, material inputs and wages

24

PPI for inputs to construction, goods

Average hourly earnings for all construction employees

PPI for nonresidential building

12-month % change, not seasonally adjusted: Jan. 2015 –July 2017

Source: Bureau of Labor Statistics

2016 summary, 2017-18 forecast

Source: actuals: Census, BLS; forecasts: Author’s estimates

2016actual

2017forecast

2018forecast

Total spending 6% 3-5% 2-7%

Private – residential 11% 7-9% 6-9%

– nonresidential 8% 2-4% 1-5%

Public -1% -4 to -6% -3 to 3%

Goods & services inputs PPI 2% 2.5-3.5% 3-4%

Employment cost index 2.2% 2.5-3% 3-4%

25

AGC economic resources(email simonsonk@agc.org)

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

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

• yearly employment & outlook surveys, state and metro data, fact sheets: www.agc.org/learn/construction-data

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