Construction Spending, Labor & Materials Outlook

Construction Spending, Labor & Materials Outlook

January 2, 2014Ken Simonson

Chief Economist, AGC of [email protected]

2

2006 2007 2008 2009 2010 2011 2012 2013-30%

-15%

0%

15%

30%

12 m

onth

n%

cha

nge

12 m

onth

n%

cha

nge

2006 2007 2008 2009 2010 2011 2012 2013$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-Nov. 2013 (billion $, SAAR)

Public: $275

Private Nonresidential: $314

Private Residential: $346

12-month % change, Jan. 2006-Nov. 2013

Public: 0%Private Nonresidential: 1%

Private Residential: 17%

Total: 6%

Source: Census Bureau construction spending reports

Nov. 2013 total: $934 bil.

3

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’

4Source: U.S. Energy Information Administration

Haynesville

Eagle Ford

Bakken

Marcellus

Niobrara

Permian

5

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

6

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

7

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

8

2011 2012 2013-15%

0%

15%

30%

45%

60%

12 m

onth

n%

cha

nge

2011 2012 2013$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-November 2013 (billion $, SAAR)

Multi-family

Single family

Improvements

12-month % change, Jan. 2011-November 2013

Improvements: 10%

Single family: 18%

Multi-family: 36%

Total: 17%

Source: Census Bureau construction spending reports

9

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

demographic shifts may limit increases• MF: Upturn should last into late 2014, perhaps 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

10

11/13 Total 11/12-11/13 2014 ForecastNonresidential $583 billion 1% 4-8%

Power (incl. oil & gas structures, pipelines) 85 -21 10+Highway and street 82 4 near 0Educational 82 1 0 to -5Manufacturing 55 14 10+Commercial (retail, warehouse, farm) 55 17 -5 to 5Transportation 43 9 2 to 10Office 40 6 near 0Health care 40 0 near 0Sewage and waste disposal 21 -6 10+Communication 16 -11Lodging 15 31Other (Amusement & recreation; water; public safety; conservation; religious): 8% of total 2

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

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

11

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013$0

$30,000

$60,000

$90,000

$120,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013$0

$30,000

$60,000

$90,000

$120,000

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

Source: Census Bureau construction spending reports

Power (84% private)

Private transportation facilities

Manufacturing (99% private)

Public transportation facilities

Latest 12-mo. change: -21% (private -24%; public -2%)

Latest 12-mo. change: 18%

Latest 12-mo. change: 14%

Latest 12-mo. change: 5%

PrivatePrivate

Public

12

2008 2009 2010 2011 2012 2013$0

$20,000

$40,000

$60,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013$0

$20,000

$40,000

$60,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

Construction spending: institutional (private + state/local)

Source: Census Bureau construction spending reports

Total private education

Hospitals (79% private)

State & local higher education

State & local preK-12 education

Latest 12-mo. change: 7%

Latest 12-mo. change: -3% (private 0%; state/local -13%)

Latest 12-mo. change: 3%

Latest 12-mo. change: -1%

PrivateState/local

13

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

2008 2009 2010 2011 2012 2013$0

$30,000

$60,000

$90,000

Construction spending: public works (billion $, SAAR)

Source: Census Bureau construction spending reports

Highways (99.9% public)

Amusement & recreation (57% public)

Sewage/waste (99% public)

Water supply (95% public)

PublicPublic

Public

PrivatePublic

Latest 12-mo. change: 4% Latest 12-mo. change: -6%

Latest 12-mo. change: 6% (private 12%; public 1%) Latest 12-mo. change: 2%

14

2008 2009 2010 2011 2012 2013$0

$20,000

$40,000

$60,000

$80,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013$0

$10,000

$20,000

$30,000

$40,000

2008 2009 2010 2011 2012 2013$0

$20,000

$40,000

$60,000

$80,000

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

Source: Census Bureau construction spending reports

Retail (private)

Warehouse (private)

Office (80% private)

Lodging (private)

Latest 12-mo. change: 24%

Latest 12-mo. change: 26% Latest 12-mo. change: 33%

Latest 12-mo. change: 6% (private 11%; public -13%)

Public

Private

3%

-0.1%

8%

5%

4%

-4%

5%

-0.2%

5%

7%

2%

8%

2%

2%

1%

1%

2%

4%

5%

10%

4%

4%

3%

2%

-3%

-1%

-1%

17% -3%

-3%

3%

1%

-0.5%

-1%

9%

7%

6%

5%

6%

4%

HI4%

6%

VT4%

CT11%

RI3%

DE-3%

NJ3%

MD4%

DC-4%

NH7%

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

MA5%

State construction employment change (U.S.: 3.1%) 11/12 to 11/13: 39 states up, 10+ DC down, 1 unchanged

5.1% to 10% Over 10%

Shading based on unrounded numbers

0%

Source: BLS state and regional employment report

16

Construction employment, Nov. ’13 vs. peak• US: construction -24% (-1.9 million) below Apr. ‘06 peak• States: LA & ND at new peak in 2013, 44 states > 10% below• Metros: only 25 of 339 at new Oct. 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)

18

Spending +23% but jobs only +8%. How do they do it?• Contractors charging slightly more: PPI +9% (industrial buildings)• More hours per worker: aggregate hours +12% (+4% per employee)• Implication: further spending growth will trigger bigger pickup in

hiring—but will workers be available?

Construction spending, labor & prices, 1/11-11/13

Spending Employment0%

5%

10%

15%

20%

25% 23%

8%

% ch

ange

1/1

1-10

/13

Spending Total hours worked0%

5%

10%

15%

20%

25%

12%%

chan

ge 1

/11-

10/1

3

23% total

9% price change

14% real

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

19

November '10 November '130%

5%

10%

15%

20%

18.8%

8.6%9.3%6.6%

Construction Total

Construction vs. overall (un)employment, 11/10-11/13

• 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, Nov. 2010-Nov. 2013)

Nonfarm empl.

Const. empl.

Const. unem.

6,440,000

327,000

-890,000

Change in unemployment & employment(Not seasonally adjusted, Nov. 2010-Nov. 2013)

Percentage of firms having a hard time filling key professional &

craft worker positions

all prof. & craft 21%

Some prof. & craft 24%

prof. only 7%

no trouble 11%

nothiring

8%

craft only 28%

20Source: AGC Worker Shortage Survey, Aug. 2013

Craft - any 74%Laborers 35Carpenters 34Equipment operators 31No trouble/don’t employ crafts 26

Professional - any 53%Project managers/supervisors 49Estimators 35Engineers 15No trouble/not hiring 47

Hardest positions to fill(% of respondents that are

having trouble filling)

21

12/10 2011 2012 2013100

102

104

106

108

110

Dece

mbe

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)

ECI9/12-9/13: 2.1%

PPI for offices11/12-11/13: 2.7%

PPI for materials11/12-11/13: 1.1%

22

2011 2012 201380

100

120

140

2011 2012 201380

100

120

140

2011 2012 201380

100

120

140

2011 2012 201380

100

120

140

Producer price indexes for key inputs, 1/11-11/13 (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: 0.8%, 12-mo.: -1%

Latest 1-mo. change: -1.6%, 12-mo.: 14%

Latest 1-mo. change: -1.1%, 12-mo.: -6%

Latest 1-mo. change: 1.4%, 12-mo.: 13%

23

2011 2012 201385

100

115

130

2011 2012 201385

100

115

130

2011 2012 201385

100

115

130

2011 2012 201385

100

115

130

Producer price indexes for key inputs, 1/11-11/13 (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: -3.9%, 12-mo.: -6%

Latest 1-mo. change: 0.4%, 12-mo.: -1%

Latest 1-mo. change: 0.1%, 12-mo.: 3%

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

24

Summary for 2013• Total construction spending: +4% to +7% (vs. 9% in ‘12)• Res +15% to +20% (vs. 15% in ‘12): MF very strong, SF ??• Private nonres +1% to +4% (vs. 16% in ‘12): more

manufacturing, warehouse, data centers; remodels of hotels, office, retail; flat power, health care, private ed

• Public: -2% to -4% (vs. -3% in ‘12): highways 0%, ed -8%; federal spending-down; states-level; local-small decline

• Materials costs: +1 to +2% Dec.-Dec. (vs. 1.4% in ‘12)• Labor costs: +2% to +2.5% Dec.-Dec. (vs. 1.6% in ‘12)• Labor supply: limited craft, professional shortages

Source: Author

25

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

26

Summary for 2013, 2014-17

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

2012actual

2013est.

2014-17annualaverage

Total spending 9% 4-7% 6-10%

Private – residential 15% 15-20% 1-10%

– nonresidential 16% 1-4% 1-10%

Public -3% -2 to -4% 0 or less

Materials PPI 1.4% 1-2% 1-3%; rare spikes

Employment cost index 1.6% 2-2.5% 2.5-5%

27

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• Website: http://www.agc.org/Economics