1. Construction Spending, Labor & Materials Outlook
January 2, 2014
Ken Simonson
Chief Economist, AGC of America

2. Construction spending (seasonally adjusted annual rate—SAAR)
Total construction, Jan Nov (billion $, SAAR)
Nov total: $934 bil.
Public: $275
Private Nonresidential: $314
Private Residential: $346
12-month % change, Jan Nov. 2013
Private Residential: 17%
Total: 6%
Private Nonresidential: 1%
Public: 0%
Source: Census Bureau construction spending reports

3. Construction is growing, but unevenly
3 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

4. One (or many) bright spot(s): the shale ‘gale’
Bakken
Marcellus
Niobrara
Haynesville
Permian
Eagle Ford
Source: U.S. Energy Information Administration

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
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 Orleans
Houston
Source: U.S. Army Corps of Engineers

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. Private residential spending is still rising—for now
Private residential spending, Jan November 2013 (billion $, SAAR)
Multi-family
Single family
Improvements
12-month % change, Jan November 2013
Multi-family: 36%
Single family: 18%
Total: 17%
Improvements: 10%
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. Nonres segments, 2013 & 2014 forecast (billion $, SAAR)
11/13 Total
11/12-11/13
2014 Forecast
Nonresidential
$583
billion 1 %
4-8
Power (incl. oil & gas structures, pipelines) 85
-21
10+
Highway and street 82 4
near 0
Educational
0 to -5
Manufacturing 55 14
Commercial (retail, warehouse, farm) 17
-5 to 5
Transportation 43 9
2 to 10
Office 40 6
Health care
Sewage and waste disposal 21 -6
Communication 16
-11
Lodging 15 31
Other (Amusement & recreation; water; public safety; conservation; religious): 8% of total 2
Source: Census Bureau construction spending report; Author’s forecast

11. Construction spending: industrial, heavy (billion $, SAAR)
Power (84% private)
Manufacturing (99% private)
Public
Private
Private
Latest 12-mo. change: -21% (private -24%; public -2%)
Latest 12-mo. change: 14%
Private transportation facilities
Public transportation facilities
Latest 12-mo. change: 18%
Latest 12-mo. change: 5%
Source: Census Bureau construction spending reports

12. Construction spending: institutional (private + state/local)
Total private education
State & local higher education
Latest 12-mo. change: 7%
Latest 12-mo. change: 3%
Hospitals (79% private)
State & local preK-12 education
State/local
Private
Latest 12-mo. change: -3% (private 0%; state/local -13%)
Latest 12-mo. change: -1%
Source: Census Bureau construction spending reports

13. Construction spending: public works (billion $, SAAR)
Highways (99.9% public)
Sewage/waste (99% public)
Public
Public
Latest 12-mo. change: 4%
Latest 12-mo. change: -6%
Amusement & recreation (57% public)
Water supply (95% public)
Public
Public
Private
Latest 12-mo. change: 6% (private 12%; public 1%)
Latest 12-mo. change: 2%
Source: Census Bureau construction spending reports

14. Construction spending: developer-financed (billion $, SAAR)
Retail (private)
Office (80% private)
Public
Private
Latest 12-mo. change: 24%
Latest 12-mo. change: 6% (private 11%; public -13%)
Warehouse (private)
Lodging (private)
Latest 12-mo. change: 26%
Latest 12-mo. change: 33%
Source: Census Bureau construction spending reports

15. State construction employment change (U. S. : 3
State construction employment change (U.S.: 3.1%) 11/12 to 11/13: 39 states up, 10+ DC down, 1 unchanged
Over -10%
-5.1% to -10%
-0.1% to -5% 0%
0.1% to 5%
5.1% to 10%
Over 10%
-0.1% 4%
-4% 6% 8% 8% 4%
NH 7% 2% 4% 3% VT 4% 2% 5% 5%
-0.2% 5% 1%
MA 5% 4% 2% 3%
-3%
-3% 7% 5%
10%
-0.5%
CT 11%
RI 3% 1%
-1% 5%
-1% 2%
-1%
DE -3%
NJ 3% 1% 2% 6% 6% 9%
17%
-3% MD 4%
DC -4% 4% 3% 7%
Shading based on unrounded numbers
HI 4%
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 (

18. Construction spending, labor & prices, 1/11-11/13
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?
23% total
9% price change
14% real
Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

19. 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
Unemployment rates (Not seasonally adjusted, Nov Nov. 2013)
Change in unemployment & employment
(Not seasonally adjusted, Nov Nov. 2013)
Source: Author, from Census Bureau (spending), BLS (employment, hours, PPI)

20. Hardest positions to fill (% of respondents that are
Percentage of firms having a hard time filling key professional & craft worker positions
Hardest positions to fill (% of respondents that are
having trouble filling)
Some craft 74%
Craft - any
74%
Laborers 35
Carpenters 34
Equipment operators 31
No trouble/don’t employ crafts 26
Professional - any
53%
Project managers/supervisors 49
Estimators
Engineers 15
No trouble/not hiring 47
Some prof. 53%
all prof. & craft 21%
Some prof. & craft 24%
prof. only 7%
no trouble 11%
craft only 28%
not
hiring 8%
Source: AGC Worker Shortage Survey, Aug. 2013

21. Material & labor costs vs. office bid prices since 12/10
PPI for materials
11/12-11/13: 1.1%
PPI for offices
11/12-11/13: 2.7%
ECI
9/12-9/13: 2.1%
Source: Author, based on Bureau of Labor Statistics for Producer Price Indexes (PPIs) and Employment Cost Index (ECI)

22. Producer price indexes for key inputs, 1/11-11/13 (Jan. 2011=100)
Steel mill products
Copper & brass mill shapes
Latest 1-mo. change: 0.8%, 12-mo.: -1%
Latest 1-mo. change: -1.1%, 12-mo.: -6%
Gypsum products
Lumber & plywood
Latest 1-mo. change: -1.6%, 12-mo.: 14%
Latest 1-mo. change: 1.4%, 12-mo.: 13%
Source: Author, based on BLS producer price index reports

23. Producer price indexes for key inputs, 1/11-11/13 (Jan. 2011=100)
No. 2 diesel fuel
Concrete products
Latest 1-mo. change: -3.9%, 12-mo.: -6%
Latest 1-mo. change: 0.1%, 12-mo.: 3%
Plastic construction products
Asphalt paving mixtures & blocks
Latest 1-mo. change: 0.4%, 12-mo.: -1%
Latest 1-mo. change: -0.1%, 12-mo.: 1%
Source: Author, based on BLS producer price index reports

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 2012 actual 2013 est. 2014-17 annual average
Total spending 9%
4-7%
6-10%
Private – residential
15%
15-20%
1-10%
– nonresidential
16%
1-4%
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%
Source: 2012: Census, BLS; : Author’s ests.

27. AGC economic resources (email simonsonk@agc.org)
The Data DIGest: weekly 1-page (subscribe at
monthly press releases: spending; PPI; national, state, metro employment
State and metro data, fact sheets
Website: