U.S. economic indicators paint a more positive picture for the construction industry than a year ago.
by Frank Guerriero
Commercial Construction
As the commercial construction industry treaded water for nearly six years, the shore line finally seems to be within reach. With the addition of 2,000 jobs last month, the nation?s construction industry unemployment rate fell to 12.8 percent in June, down from 14.2 percent in May, according to the July 6 employment report by the U.S. Labor Department.
A year ago, the construction unemployment rate crested at 15.6 percent. What this means for the commercial construction industry, is that for now it seems to be stabilizing.? For how long, that all depends on foreign markets, GDP and the buying confidence of U.S. consumers. The U.S. Census Bureau?s construction spending report for June?s total national construction spending, including both residential and nonresidential construction ? increased 0.9 percent from April to May and is 7 percent higher from one year ago.? However, nonresidential construction remains the same over the last two months, totaling $562.3 billion.
Although nonresidential construction growth has seemed to plateau for the time being, eight out of the 16 sectors experienced gains from April to May, including commercial, up 1.5 percent; conservation and development, up 8.9 percent; health care, up 1.4 percent; lodging, up 0.2 percent; manufacturing, up 3.4 percent; power, up 0.7 percent; public safety up 0.7 percent; and transportation, up 0.6 percent.
In contrast, construction sectors that experienced declines from April to May include amusement and recreation, down 0.1 percent; communication, down 0.2 percent; educational, down 3 percent; highway and street, down 0.5 percent; office, down 1.5 percent; religious, down 8.2 percent; waste disposal, down 1.5 percent; and water supply, down 1.4 percent.
?While private nonresidential construction spending was up for the month, gains were offset by declining public nonresidential spending,? MABX Executive Director Chad Harvey said..
Spending on public sector construction fell 0.4 percent to just below $270 billion annualized, diminishing for the fifth consecutive month in a row.
This trend of rising private spending offset by continued decreases in public spending is projected to continue over the short term.? However, the momentum experienced by current private spending greatly hinges on the state of the macro-economy.
?Much is weighing on the balance as performance gains are a result of decisions made 12 to 14 months earlier when global markets were not as uncertain,? Harvey said, ?specifically the European debt crisis, America?s lack of job growth, and the Architecture Billings Index (American Institute of Architects) dropping below that coveted line from 50 to 45.8 points.?
Regionally, the South leads performance gains in commercial construction growth, as the Mid Atlantic region continues to experience stagnant growth trends.? Comparatively, the Northeast continues to experience a decline in construction activity, due in part to economic struggles stemming from debt ceiling issues.
As state and local government spending trended down, an unpredicted outcome this month arose in a surge in federal construction spending, as reflected in the categories of development and conservation.? Meanwhile, residential construction spending was up 2.9 percent for the month and is up 6.2 percent compared to one year ago.? Indirectly, this is a good sign, as consumers become less hypersensitive to spending and begin to reinvest back into the economy, driven by housing interest rates at all-time lows. Ultimately, increased consumer spending is projected to fuel the economy and begin to spawn greater output in manufacturing, capital spending and expansion.
Building Materials
Nationally, building and construction materials prices continue to drop as a result of numerous economic factors. Much can be attributed to a coordinated global economic decline combined with decreasing global demand for construction materials, offset by a stabilizing U.S. dollar.? Globally, the economic weakness is documented worldwide as China?s economic expansion has slipped below 8 percent and the vitality of the Euro continues to be in question.
The July 13 Producer Price Index, reported by the U.S. Labor Department, stated that national construction materials prices fell by 0.6 percent in June. Although the prices of construction materials are down 1 percent relative to last quarter, prices remain 0.2 percent higher than last year at this time.
Softwood lumber prices rose by 1.9 percent in June, rising 7.4 percent during the second quarter and 11 percent higher from one year ago. The cost of concrete products increased 0.3 percent in June and remained unchanged for the quarter, and climbed 1.5 percent from the same time last year. Fabricated structural metal product prices rose 0.2 percent last month as well as quarterly, and are 1.5 percent higher from last June.
In contrast, iron and steel products fell 3.8 percent for June, down 4.9 percent for the quarter and 6 percent lower from one year ago. Non-ferrous wire and cable product prices declined 2.1 percent for the month, 3.3 percent lower for the quarter and are down 7.3 percent from June 2011. Steel mill prices fell 1.3 percent from the previous month, down 2 percent during the second quarter and 3.2 percent lower from the same time last year. Plumbing fixtures and fittings prices remained unchanged for the month and are down 0.7 percent during the second quarter, but are 1.5 percent higher from last year.
In regards to crude energy materials, prices declined 5.1 percent in June on a seasonally adjusted basis and are 16 percent lower compared to the previous quarter. The decline can be attributed to prices for crude petroleum and coal. Year-to-year, crude energy materials prices are down 20.5 percent.?Overall, national wholesale good prices increased 0.1 percent in June on a seasonally adjusted basis, but decreased 1.2 percent for the quarter.
Construction Employment
According to the July 6 employment report by the U.S. Labor Department, 2,000 jobs were added to the nation?s construction industry, driving the industry?s unemployment rate down to 12.8 percent in June from 14.2 percent in May. Last year at this time, the construction unemployment rate had skyrocketed to 15.6 percent.
The number of unemployed construction workers now stands at 1.04 million, down from 1.32 million a year ago. However, much of this improvement is attributable to a decline in the size of the construction workforce, which now totals 8.12 million people, down from more than 8.44 million people a year ago. June?s construction employment gains were primarily the result of a 10,000 job increase among specialty trades contractors. Employment in the specialty trades contractor segment is up 15,900 jobs. Nonresidential specialty trades contractors added 7,600 jobs for the month and have gained 14,100 jobs, or 1 percent, during the past year.
In contrast, nonresidential building construction employment declined by 1,000 last month to 657,500. Employment in this category is still higher relative to a year ago, up 0.7 percent, totaling an additional 4,300 jobs. Heavy and civil engineering construction employment decreased by 2,000 jobs for the month and has fallen by 1,800 jobs, declining 0.2 percent from this time last year.
Overall, the nation added 80,000 jobs in June and 1.8 million jobs during the past 12 months. The private sector added 84,000 jobs, while the government sector lost 4,000 jobs. June represents the 28th consecutive month of private sector job growth in the United States. However, the unemployment rate remained unchanged for the month at 8.2 percent, down from 9.1 percent in June 2011.
Summary
Although erratic since last September, the nation?s economy has managed to regain some resemblance of momentum ? reflective of an economy in search of stabilization. U.S. economic indicators paint a more positive picture than a year ago, and there seems to be no immediate debt ceiling confrontation ahead. Although the elevated levels of global economic uncertainty regarding near-term recovery weigh heavily, until some substantial percentage of that uncertainty subsides, declining materials? prices will fail to greatly impact nonresidential construction spending. Impact will be driven by consumer spending, projected to fuel the economy and begin to spawn greater output in manufacturing, capital spending and expansion.
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