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Construction economist assesses slowing private work stability

An Associated Builders & Contractors analysis of U.S. Census Bureau data shows seasonally adjusted, annualized spending of $687 billion in August, 1.1 percent and 1.3 percent lower than prior month and August 2015 levels, respectively. Four of the five largest nonresidential subsectors—power, highway and street, commercial and manufacturing—combined to fall 2.2 percent on a monthly basis in August 2016.

“Nonresidential construction [stakeholders] have become accustomed to seeing weak spending data,” says ABC Chief Economist Anirban Basu. “While previous weak spending reports can almost completely be explained by diminished public construction spending,” he adds, August Census data reveals “emerging weakness in private spending [with] some noteworthy exceptions. Office-related construction spending continued to surge higher, rising 2 percent for the month and up a whopping 24 percent on a year-over-year basis. Construction spending related to lodging rose 1.2 percent on a monthly basis and is nearly 16 percent higher than the year-ago level. Foreign investment in U.S. commercial real estate heavily influences these two segments, which has helped produce both higher asset prices and more construction.”

“Given the passage of a federal highway bill last year, one might have expected spending growth in the highway/street and transportation categories,” Basu explains. “Those expectations have been unmet thus far.” Transportation-related construction spending dipped by more than 6 percent in August and is down more than 11 percent on a year-over-year basis. Highway and street spending is down by more than 8 percent on a year-ago basis, and was nearly 3 percent lower for August.

“There are a number of theories at work, including the 2016 election cycle, which has led to some decision-makers putting projects on hold. Government spending generally remains weak, and there are some indications that private lending standards are tightening due to a combination of growing concern among financial industry regulators and bankers that real estate bubbles are forming again in certain communities and segments”


EMPLOYMENT REBOUND

The construction industry rebounded in a meaningful way in September by gaining 23,000 net new jobs on a monthly basis after losing 5,000 net jobs in August, according to an ABC analysis of U.S. Bureau of Labor Statistics data. Despite the broader industry gains, the nonresidential sector added 2,700 net new jobs for the month, while the residential sector added 15,700 new positions. The heavy and civil engineering subsector added 4,300 net new jobs after losing 23,200 positions over the previous five-month period.

“Recent reports indicate that wage growth in America has accelerated significantly over the past year,” Basu observes. “Not only has this helped to support consumer spending, it appears to be inducing more people into America’s labor force. Despite recent job growth in construction and the balance of the economy [in September], both industry and national unemployment rose. For operators of construction firms, this should be considered good news as survey data indicate that the lack of appropriately skilled labor represents the biggest concern for U.S. construction firms.