Associated General Contractors of America (AGC) construction outlook
Construction employment falls in May; hourly earnings premium, hires decline in April; openings soar, reports Ken Simonson, AGC chief economist.
Construction employment, seasonally adjusted, totaled 7,423,000 in May, a drop of 20,000 from April and the third decline in the past four months, according to AGC’s analysis of Bureau of Labor Statistics (BLS) data. The May total was 225,000 (-2.9 percent) below the pre-pandemic peak in February 2020.
The gap widened between residential and nonresidential employment gains. Residential construction employment, comprising residential building and residential specialty trade contractors, edged up by 1,900 in May, putting the total 35,000 (1.2 percent) higher than in February 2020.
Nonresidential construction employment—building, specialty trades, and heavy and civil engineering construction—shrank by 21,800 in May and was 260,000 (-5.6 percent) below the February 2020 level. A total of 642,000 former construction workers were unemployed in May, a sharp decline from May 2020 but the second-highest May level since 2014. The industry’s unemployment rate in May was 6.7 percent, compared to 12.7 percent in May 2020.
Wages increase
The BLS report also covers average hourly earnings by industry, with a one-month lag for subsectors. For total construction, hourly earnings in April averaged $32.59, 8.0 percent more than the average for the nonfarm private sector. However, over the past two years this premium shrank by 2.2 percentage points from 10.2 percent in April 2019, implying that the financial attractiveness of construction may be diminishing as other sectors that are expanding faster raise pay to attract more workers.
The premium diminished the most for employees of heavy and civil engineering construction firms (-4.5 points, from 16.0 percent above the private-sector average in April 2019 to 11.5 percent in April 2021), followed by residential building firms (-2.7 points, from an 8.8 percent premium to 6.0 percent), specialty trade contractors (-1.0 points, from a 6.1 percent premium to 5.0 percent), and nonresidential building firms (-0.9 points, from a 25.4 percent premium to 24.5 percent).
There were 357,000 job openings in construction, seasonally adjusted, at the end of April, BLS reported on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. Hires in April totaled 335,000 or 4.5 percent of the employment total for the month. Apart from the pandemic-depressed 3.1 percent rate in 2020, the rate was the lowest rate of hires for April in the 21-year history of the series, while the job openings rate (4.6 percent of filled and unfilled jobs) was the second-highest total for any month since the series began in December 2000. That is consistent with reports from many contractors that they are having a very hard time hiring workers. (JOLTS data combines nonresidential construction with residential, and it is not possible to tell if the demand and openings are coming from both segments of the industry.)
Dodge index jumps
The Dodge Momentum Index jumped 9.1 percent in May from the revised April reading, Dodge Data & Analytics reported. The index “is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year….May’s jump was the result of a large increase in commercial planning activity, which posted its strongest month-over-month increase since October 2017.
Institutional planning, meanwhile, fell by less than one percentage point. Commercial planning had been in a holding pattern over the last four months but broke out in May due to several sizable data center, office, and warehouse projects that peaked in a 13-year high for the commercial component of the Momentum Index. While essentially flat in May, institutional planning remains at levels not seen since 2009.
On a year-over-year basis, both commercial and institutional planning were up from May 2020 (38 percent and 47 percent respectively). The Momentum Index overall was also 41 percent higher than in May 2020. The rising trend in planning activity is a good sign that the economic recovery is starting to spread into the construction sector. However, these projects are unlikely to have an impact on construction starts this year. Rising material prices and a continued shortage of skilled labor have led to project delays. On the upside, construction starts are shaping up for a healthy increase in 2022.”
Materials price increase
Readers continue to report materials price increases, some immediate or retroactive, and supply-chain disruptions. A reader received a notice on June 5 from a structural steel supplier that “Effective with orders received after 8:00 pm EST, Friday June 4, [m]erchant products will be increased by…$70 ton.” A commercial furniture supplier notified customers on June 8, “Foam shortages persist, and foam pricing continues to rise[, making] it necessary to adjust pricing on select pieces[, ]effective June 7.” A Texas concrete supplier wrote to customers on June 4, “Effective August 1,…we will be increasing the price of all concrete products by $3.00 per cubic yard[, ] due to labor shortages.” Readers are invited to send information to ken.simonson@agc.org.
Steel-industry newsletter Steel Market Update reported today, “Hot-rolled coil prices charged higher yet again even as lead times stretched into August, a typically slower time of the year….Hot-rolled coil prices have hit a new all-time high of $1,675 per ton, up $55 per ton compared to a week ago and up $1,235 per ton from August of last year. Cold-rolled coil prices were up $65 per ton week-over-week, galvanized base prices gained $20 per ton, and Galvalume prices were up $70 per ton. The increases came after June prime scrap prices settled up $60 per gross ton. Plate prices, meanwhile, were unchanged….SMU’s Price Momentum Indicators, in the meantime, continue to point toward higher prices for the next 30 days.”
Lumber-product prices have shown mixed trends recently. Futures contracts for lumber have declined sharply for four weeks in a row, while trade publication Random Lengths reported further record weekly highs for oriented strand board and lumber prices.
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