Employment strengthens in October; ABI, housing starts pick up in September
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Nonfarm payroll employment increased by 271,000 in October, seasonally adjusted, and by 2,814,000 (2.0%) year-over-year (y/y), while the unemployment rate dropped to a 7-1/2 year low of 5.0%, the Bureau of Labor Statistics (BLS) reported on Friday. Construction employment rose by 31,000 for the month (to 6,434,000) and by 233,000 (3.8%) over 12 months. The number of unemployed jobseekers who last worked in construction edged down from 542,000 in October 2014 to 534,000 in October 2015, the lowest October total since 2006. The unemployment rate for such workers dipped from 6.4% a year earlier to 6.2%, the lowest October rate since 2007. (Industry unemployment data are not seasonally adjusted and should only be compared y/y, not across months.) Average hourly earnings—a measure of wages and salaries—in construction increased by 2.6% over 12 months, the largest October-to-October rise since 2009. The pickup in wages is consistent with the decline in overall and construction unemployment and the results of a survey AGC released on September 10 in which 86% of contractors reported difficulty finding qualified hourly craft or salaried professional workers.
The Architecture Billings Index (ABI) "rebounded in September with a score of 53.7 (any score over 50 indicates billings growth)," up from 49.1 in August, the American Institute of Architects reported on October 30. The index measures the percentage of surveyed architecture firms that reported higher billings than a month earlier less the percentage reporting lower billings. Based on three-month moving averages, firms with an institutional practice had the highest score (51.5, down from 53.7 in August), followed by commercial/industrial (50.9, up from 49.7) and multifamily residential (49.5, unchanged).
Housing starts increased 18% from September 2014 to September 2015 and 11% year-to-date (YTD), the Census Bureau reported on October 20. Single-family starts rose 12% y/y and 11% YTD. Multifamily (buildings with 5 or more units) starts jumped 29% y/y and 15% YTD. Building permits, a fairly reliable predictor over time of near-term starts, especially single-family, increased 4.7% y/y and 13% YTD overall, with single-family permits rising 6.7% and 9.4%, respectively, and multifamily down 1.3% y/y but up 19% YTD. Multifamily permits YTD (333,000) far exceed starts (296,000), suggesting more projects may begin soon. Single-family permits YTD (531,000) trail starts (549,000). Two Census releases on October 27 also suggest more strength in multifamily, or at least rental, housing, than single-family or owner-occupied housing: the rental vacancy rate in the third quarter of 2015 slipped to 7.3% from 7.4% a year earlier and the homeownership rate fell to 63.7% from 64.4%.
Consultant IHS and the Procurement Executives Group (PEG) reported on October 28 that "construction costs fell again in October....The headline current IHS PEG Engineering and Construction Cost Index (ECCI) registered 40.9 this month, down from 43.8 in September and well below the neutral mark [in which a reading greater than 50 represents upward pricing strength and a reading below 50 represents downward pricing strength]. The headline index has not indicated rising costs since December. The current materials/equipment index slipped to 39.0, down from 41.6 in September. The pricing environment is deteriorating, with the current materials/equipment index registering its lowest reading in the last four years. The underlying detail shows falling prices for all individual components tracked by the survey. Ready-mix concrete, which has been the strongest index over the year, dropped below the neutral mark [for the first time since April 2013.] 'Prices for construction materials have been falling around 2 to 5% (y/y) every month in 2015,' said Deni Koenhemsi, IHS economist. 'Among declining building materials, cement stood out, with prices rising around 8 to 9% (y/y) this year. As construction activity picked up, cement demand was not met due to production constraints. This trend is beginning to change. In addition to seasonal factors, rising and cheaper imports are putting downward pressure on cement prices in the United States.' [Prices for] fabricated structural steel, carbon steel pipe and alloy steel pipe...are still falling. Steep declines in turbines, transformers and electrical equipment indexes indicate that the price weaknesses are percolating through the supply chain. The current subcontractor labor index registered 45.1 in October. This marks the third month below the neutral mark and the lowest reading since the beginning of the survey four years ago...Nine individual components registered lower price expectations. Expectations for ready-mix were still above the neutral mark but the index...was significantly less than its September mark." A reader sent price increase notices of $8-12 per yard for ready-mix concrete in Virginia, effective January 1, 2016. Please send price-change notices to simonsonk@agc.org.
The National Highway Construction Cost Index, a measure of the cost of all projects awarded by states, increased 0.9% from March to June, compared with 1.6% the previous quarter, and 3.9% over 12 months, according to data the Federal Highway Administration posted. The 12-month change was the steepest since September 2011.
The markets for self-storage and warehouse construction appear to be shifting. "Business is booming for companies that lease out storage units to consumers," the Wall Street Journal reported on October 14. "Large investment firms also are trying to cash in, with Carlyle Group LP spending about $80 million to help build new facilities in Southern California, the Pacific Northwest and elsewhere, and...Public Storage has plans to build 3.9 million square feet of storage space, according to a company spokesman." Census Bureau data posted on November 2 show general commercial warehouse construction spending reached a post-recession high in December 2014 but declined 11% at a seasonally adjusted annual rate by September, whereas mini-storage construction spending increased 97% over those nine months
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