Posted September 15, 2020

Associated General Contractors (AGC) economic outlook -- September 2020

August input cost and bid price trends diverge; Dodge Momentum Index signals mixed outlook.

Ken Simonson, AGC chief economist, breaks down the most recent report for the Bureau of Labor Statistics (BLS) and what it means for the outlook for construction projects and activity.

Construction costs diverged again in August, as indicated by producer price indexes (PPIs) that the Bureau of Labor Statistics (BLS) posted on September 10, 2020.

AGC posted tables showing PPIs relevant to construction. The PPI for new nonresidential building construction or “bid price” index—a measure of the price that contractors say they would charge to build a fixed set of buildings—slipped 0.3 percent for the month, not seasonally adjusted, and is up just 0.1 percent since April. Meanwhile, the PPI for inputs to new nonresidential construction rose 0.7 percent in August, for a four-month gain of 4.1 percent.

The PPI for new residential construction climbed 1.8 percent in August and 4.9 percent over four months. Compared to August 2019, the PPI for new nonresidential building construction increased 2.0 percent year-over-year (y/y), while the PPI for inputs to new construction inched up 0.1 percent for nonresidential and rose 2.5 percent for residential. Items important to construction with large 1- or 12-month changes include: lumber and plywood, up 11 percent for the month and 27 percent y/y; copper and brass mill shapes, 3.2 percent and 7.9 percent, respectively; diesel fuel, 5.9 percent and -7.3 percent; aluminum mill shapes, 1.7 percent and -9.8 percent; and steel mill products, -1.7 percent and -11 percent. 

The Dodge Momentum Index rose 1.8 percent in August from the revised July reading, Dodge Data & Analytics reported on September 8, 2020. 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.

In August, the commercial component rose 3.3 percent, while the institutional component moved 1.2 percent lower. The August increase in the overall Momentum Index is the second consecutive rise and a further sign that the construction sector continues to post a modest recovery following the large declines in April and June.

This recovery, though, is uneven. The commercial component has risen 9 percent from its June low and is just 13 percent below its 2018 peak, fueled by increased planning activity for warehouse and office projects.

The institutional component, however, has declined for five consecutive months and has yet to hit bottom. The institutional component is now 34 percent below its recent peak. The public side of the building market is suffering as state and local government revenues have declined, creating budget cuts across the country. This has led to a significant pullback in education projects entering planning, placing substantial downward pressure on the institutional component.”

Construction employment

There were 334,000 job openings in construction, not seasonally adjusted, at the end of July, down just 5 percent from the 353,000 openings in July 2019, BLS reported on Drptember 9. 2020 in its latest Job Openings and Labor Turnover Survey (JOLTS) release. In March through June, openings were down by 15 to 43 percent y/y. Hires in July totaled 436,000, up 0.7 percent y/y. Layoffs and discharges as a percent of employment in July rose to 2.5 percent from 2.2 percent a year earlier but remained low relative to the July 2000-July 2019 average of 2.9 percent. 

The JOLTS data are broadly consistent with the results of the 2020 AGC of America-Autodesk Workforce Survey that AGC released on September 2, 2020. Of the 2,005 respondents, 60 percent reported having unfilled hourly craft positions and 37 percent had unfilled salaried positions on June 30. As a result of the pandemic, 31 percent had added or recalled furloughed employees and 29 percent had furloughed or terminated employees.

In the Census Bureau’s latest weekly Small Business Pulse Survey, released on September 10, 2020, with responses from August 30 to September 5, 40 percent of construction firms reported domestic supplier delays, 11 percent reported foreign supplier delays and 14 percent reported production delays. These percentages were virtually unchanged over the past four weeks. In the AGC survey, 44 percent of respondents reported “projects have taken longer than we anticipated” as a result of the pandemic.

In an article BLS posted in the September Career Outlook, Elka Torpey listed construction managers among “Occupations that have it all: many openings, fast growth, and high wages,” based on BLS projections covering 2019-2029, posted on September 1, 2020.

BLS projects there will be 34,700 openings for construction managers, an 8.5 percent increase in employment (compared to 3.7 percent for total employment). Their median annual wage in 2019 was $95,260, more than double the median annual wage of $39,810 in 2019. BLS projects total construction employment will increase by 300,000 (4.0 percent).

The largest employment increases among construction occupations are projected for construction laborers, 75,400 (5.4 percent), from 1,398,000 in 2019 to 1,473,400 in 2019; and electricians, 62,200 (8.4 percent), from 739,200 to 801,400. The fastest-growing construction occupation is projected to be solar photovoltaic installers, with an increase of 51 percent, from 12,000 to 18,100 workers. Construction output is projected to grow 1.3 percent per year, down from 2.0 percent last decade and less that the projected 1.8 percent annual growth in total output. As a share of total output, construction is projected to account for 4.2 percent in 2029, down from 4.6 percent in 2019 and 4.4 percent in 2009.

In an article BLS posted in the September Monthly Labor Review, Lawrence Doppelt and Shane Haley compare the growth of real (inflation-adjusted) wages from June 2009 to December 2019 across sectors. Real average hourly earnings (1982–84 dollars) in construction increased 4.1 percent, from $11.57 to $12.05. While the growth rate was less than the total private-sector growth rate of 6.6 percent, construction wages remained higher by 12 percent in 2009 and 10 percent in 2019. Construction employment rose by 26 percent over the period, compared to 19 percent overall, implying that construction accounted for a higher share of total private wages in 2019 than in 2009.