Nonresidential Construction Starts Land Softly in June after Soaring in May
The month-to-month percentage change versus May was -18.3%. The large drop, however, was mainly due to May having so many mega-sized project initiations. May’s Top 10 project starts list totaled $20.7 billion, double the figure of $10.3 billion for June’s biggest projects rollcall.
Since large project groundbreakings can often introduce notable volatility in the monthly ‘starts’ numbers and their period-to-period percentage changes, it is informative to also study ‘smoothed’ series, such as are set out in the middle columns of Table 5.
On a 12-month average basis, June 2019’s total nonresidential starts were -3.0% compared with the previous 12 months (i.e., July-2018-to-June-2019 vs July-2017-to-June- 2018). Type-of-structure subcategory starts on the same 12-month-over-prior-12-month basis in June 2019 were: commercial, -5.2%; industrial, -11.1%; institutional, +0.3%; and engineering, -1.2%.
‘Smoothed’ grand total starts, which include residential activity, were -5.6% in June. Total homebuilding has been -9.5% on a 12-month moving-average basis. The multi-family corner of residential has been acting as more of a drag, -16.8%, than the single-family component, -6.0%.
‘Starts’ as a Leading Indicator
The ‘starts’ figures appearing in this report’s tables and graphs are not seasonally adjusted (NSA). Nor are they altered for inflation. They are expressed in what are termed ‘current’ as opposed to ‘constant’ dollars.
‘Nonresidential building’ plus ‘engineering/civil’ work accounts for a larger share of total construction than residential activity. The former’s combined proportion of total put-in-place construction in the Census Bureau’s latest report, for May, was 60%; the latter’s share was 40%.
ConstructConnect’s construction starts are leading indicators for the Census Bureau’s capital investment or put-in-place series. Also, the reporting period for starts (June 2019) is one month ahead of the reporting period for the investment series (May 2019).
The U.S. construction sector managed a nice increase in employment in June, +21,000 jobs. Construction’s monthly average climb in jobs through the first six months of this year, however, has pulled back to +18,000 from +32,000 in the first half of last year. Still, with respect to year-over-year hiring, construction remains the leader among major U.S. industrial subsectors, at +3.1%. Nipping at construction’s heels are ‘transportation and warehousing’, +2.9%, and ‘health care and social assistance’, +2.7%. The all-jobs rate of increase has been +1.5% y/y.
Construction’s NSA unemployment rate in June was 4.0%, up from 3.2% in May, but an improvement on June 2018’s 4.7%. the national jobless rate currently sits at 3.8% NSA.
June’s year-over-year employment changes in other pockets of the economy with close ties to construction were: ‘machinery and equipment rental’, +10.4%; ‘oil and gas extraction’, +8.5%; ‘architectural and engineering services’, +3.1%; ‘real estate firms’, +3.0%; ‘cement and concrete product manufacturing’, -0.2%; and ‘building material and supplies dealers’, -0.6%.
Month-to-Month, Year-Over-Year, and Year-to-Date Results
June’s -18.3% m/m drop in total nonresidential starts originated in the commercial (-13.7%) and industrial (-98.0%) type-of-structure subcategories. Moving in the opposite direction were institutional (+18.7%) and heavy engineering/civil (+7.0%). As for the nearly 100% decline in industrial work, there was no substitute in June for May’s $10 billion LNG facility in Texas.
The +3.2% gain in total nonresidential starts in June 2019 versus June 2018 (i.e., y/y) arose entirely in engineering work (+38.9%). All the other major type-of-structure subcategories were down y/y: commercial, -4.6%; institutional, -9.6%; and, most notably, industrial, -89.1%.
June’s year-to-date (ytd) modest setback of -6.4% was broadly-based, with engineering (-3.7%), institutional (-7.8%) and commercial (-14.6%) all failing to keep up with their levels in first half 2018. Bolstered by mega project work earlier this year, however, industrial has been +16.2% ytd.
Year-To-Date for Subsectors
‘Road/highway’ work has accounted for the largest slice (39%) of engineering starts so far this year. In June, such ‘street’ starts were -4.2% m/m, but 12.3% y/y and +0.4% ytd. Next in line for importance in engineering (with slices of 18% each) have been ‘water/sewage’ and ‘miscellaneous civil’ (e.g., power plants, pipelines, etc.). Metrics for the former in June were -10.8% m/m and -3.0% ytd, but +8.9% y/y. For the latter, June’s results were +57.0% m/m and +111.6% y/y, but -27.4% ytd. Six of June’s Top 10 starts were engineering projects (see Top 10 Project Starts in the U.S. – June 2019).
The ‘school/college’ subcategory has accounted for nearly two-thirds of institutional dollar volume initiations to date in 2019. In June, educational facility starts were -3.4% y/y, but +19.3% m/m and +2.3% ytd. Starts on medical facilities – as the combination of ‘hospital/clinic’, ‘nursing/assisted living’ and ‘miscellaneous medical’ structures – have made an almost one-quarter (23.3%) contribution to the institutional type-of-structure category so far in 2019. Through the first half of this year, they have been +35.7% m/m, but -25.9% y/y and -29.1% ytd.
The major player in commercial starts this year to date has been the ‘private office buildings’ subcategory (with a 24% share), followed by ‘warehouses’ (16%), ‘hotels/motels’ (15%) and ‘retail/shopping’ (13%). Private office building starts in June were +197.7% m/m and +179.6% y/y, but -0.4% ytd. The outsized percent changes m/m and y/y were mainly due to Microsoft’s campus expansion in Redmond, Washington. For ‘warehouse’ starts, June’s percent change lineup was +40.3% m/m, but -6.9% y/y and -11.4% ytd. As for ‘hotels/motels’, June’s starts performances were +7.4% m/m, but -20.0% y/y and -40.0% ytd. Finally, the numbers for ‘retail’ in the latest month were dismal across-the-board: -37.0% m/m, -26.5% y/y and -20.5% ytd.
Trend Graphs and Openings-to-Hires JOLTS Ratio
The Nonresidential Construction Starts Trend Graphs – June 2019 sets out 12-month moving average trend graphs for key type-of-structure categories. In Graph 1, the nonresidential building curve has lately been showing a tendency to dip, while the engineering curve has been mildly inclining. Further along, retail starts (Graph 3) have been in steep decline for some time, while hospital/clinic starts (Graph 4) have been easing back. Moving steadily higher have been schools (Graph 4), roads/highways (Graph 5) and bridges (Graph 6). Thanks to a couple of mega energy project groundbreakings in June (a wind power plant and a natural gas pipeline –see Top 10 Project Starts in the U.S. – June 2019), ‘miscellaneous civil’ (Graph 6) is now on the mend.
From Graph 1, the trajectory of construction job openings, whether measured as a nominal level or a rate, keeps rising. There are clearly record opportunities for employment in the sector. But personnel departments are being disappointed in their staffing efforts. Graph 2 shows that ‘hires’ levels are gradually ascending, but the ‘hires’ rate is stuck between 5.0% and 5.5%. An excellent way to gauge how difficult it has become for construction firms to find qualified workers is to examine the openings-to-hires ratio. Construction’s openings-to-hires ratio, over its history, has fluctuated mainly between 0.2 and 0.6. In early 2007, it shot up to 0.7, but quickly retreated once again with the onset of the recession. Most recently, construction’s openings-to-hires ratio has risen to never-before-seen heights. During the past three months, it has averaged 1.0.
Earnings Growth Continues Subdued
Tables B-3 and B-8 of the monthly Employment Situation report record average hourly and average weekly wages for industry sectors. B-3 is for all employees (i.e., including bosses) on nonfarm payrolls. B-8 is for ‘production and nonsupervisory personnel’ only (i.e., it excludes bosses). For ‘all jobs’ and construction, there are eight relevant percentage changes to consider.
From June’s BLS Table B-3 (including supervisory personnel), the ‘all-jobs’ compensation increases were +3.1% hourly and +2.8% weekly. Construction workers, as a subset of ‘all-jobs’, beat both those numbers, +3.2% hourly and +3.4% weekly. From June’s BLS Table B-8 (excluding bosses), the all-jobs earnings gains were +3.4% hourly and +2.7% weekly. Construction workers fell a little behind hourly, at +3.3%, but fared better weekly, +3.0%.
Further on Costing and Grand Total Starts
Further on costing, June 2019’s y/y results for three BLS Producer Price Index (PPI) series were: ‘construction materials special index’, -1.1% (down from +0.3% in May); ‘inputs to new construction index, excluding capital investment, labor and imports’, +0.1% (down from +1.3% in May); and ‘final demand construction’, +5.3% (the same as May’s +5.3%).
The value of construction starts each month is summarized from ConstructConnect’s database of all active construction projects in the U.S. Missing project values are estimated with the help of RSMeans’ building cost models.
ConstructConnect’s nonresidential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are ultra-large, has a history of being more volatile than many other leading indicators for the economy.