Leading indicators from MHC, AIA send mixed signals; office-to-apartment trend spreads
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The Dodge Momentum Index, “a monthly measure of the first (or initial) report for nonresidential building projects in planning,” advanced 8.4% in April, McGraw Hill Construction (MHC) reported last Thursday. The index has “been shown to lead construction spending for nonresidential buildings by a full year. The Momentum Index had retreated in February and March, following the steady gains that were reported during most of 2013. With the April increase, the Momentum Index resumed its upward track, and is up 17.8% compared to the same month a year ago. A harsh winter helped slow overall economic growth in the first months of 2014, but prospects for commercial development are again showing improvement, as reflected by the growing volume of projects at the planning stage and strengthening market fundamentals such as occupancy rates and rents. The April Momentum Index was bolstered by an upturn for both of its segments. Commercial was the stronger of the two components, climbing 12.1% from March….The institutional segment of the Momentum Index, meanwhile, rose 3.9% in April, marking its first monthly increase since January.”
The American Institute of Architects (AIA) introduced a new design contracts index on April 25 “to measure changes in the volume of new work coming into architecture firms, indicating how much project activity firms will be billing for over the coming months and quarters. The three-plus years of historical data on design contracts…show that new project activity was generally flat nationally through 2012 and began showing healthy gains through 2013. This index, however, was negative this January and again in March, indicating that new work coming into architecture firms has not been increasing recently.” The index is described in more detail in an AIA white paper that also examines the relationship between AIA’s Architecture Billings Index and Census Bureau estimates of construction spending.
A “major realignment [is] taking place in cities across the U.S. as landlords repurpose their buildings from spaces where people work to spaces where they sleep,” the Wall Street Journal reported on Wednesday. “While conversions in New York City have been occurring for years, the trend is now spreading to cities around the country where older buildings and empty offices are in plentiful supply….Places like Cincinnati, Baltimore, Richmond, Va., and Rochester, N.Y., all have record numbers of conversions under way. In Buffalo, N.Y. and Providence, R.I., officials have been discussing turning the tallest buildings in town…into apartments.” The article also cites examples from Cleveland, Detroit and Pittsburgh.
More than $21 billion in liquefied natural gas [LNG] production projects are scheduled to begin construction in the U.S. and Canada in 2014, “with more to come,” Industrial Info reported on April 29 (subscription required). “There are 88 [LNG] production projects in different stages of development at 44 locations…, with an estimated investment price tag of $236 billion.”
The number of employees hired in March was little changed from February or from March 2013 for the overall economy but dropped in construction, the Bureau of Labor Statistics reported last Friday. Hires represented 4.4% of construction employment, seasonally adjusted, in March, 4.9% in February and 5.9% in March 2013. The seasonally adjusted rate of job openings in construction at the end of March (1.7%) was down from February (2.1%) but little changed from March 2013 (1.8%). The seasonally adjusted rate of total separations (quits, layoffs and discharges, and other separations) in construction in March (4.3%) was unchanged from February and down from March 2013 (5.6%). Because severe weather in much of the country in February may have disrupted the start or completion of many projects, the year-over-year comparisons are more likely to reveal actual trends than the one-month differences. The mixed results are open to various interpretations. One possibility is that the drop in separations reflects an increase in new work, so that contractors are retaining employees instead of laying them off. (The Census Bureau reported on May 1 that construction spending increased 8.4% from March 2013 to March 2014, up from a 5.1% increase in the previous 12 months.) The dropoff in the hire rate despite a nearly level rate of job openings may indicate contractors are having more difficulty finding qualified workers, as many reports suggest.
A “compilation of preliminary data from 46 states shows that collections from major tax sources increased by an insignificant 0.7% in nominal terms in the first quarter of 2014 compared to the same quarter of 2013,” the Rockefeller Institute of Government reported last Tuesday. A slowdown could result in less money for state-funded construction. “This is the weakest growth since the first quarter of 2010. Among 46 early-reporting states, 37 states reported gains while nine states reported declines in total tax revenue collections. Personal income tax collections declined in nominal terms by 0.4%. This is the first time since the first quarter of 2010 that states reported declines in income tax collections. The growth in sales tax collections was also weak at 1.0%, while corporate income tax growth was at 5.6%. “Nine states reported declines in overall tax collections between the first quarter of 2013 and the first quarter of 2014, with Alaska and North Dakota reporting the largest” percentage declines, while Nebraska and Texas had the steepest increases.
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