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Construction National Outlook – March 2016

Lower gross domestic product and a shaky global economy have not yet put a damper on employment. February’s job growth was 242,000, stronger than January and slightly better than expected. Within the Bureau of Labor Statistics’ March 4 report were several bits of encouraging data for the economic outlook. Unemployment held steady at 4.9 percent, an indication that more job seekers were entering the market. Along those same lines, the workforce participation rate climbed to 62.9 percent and the broadest measure of unemployment – the U6 rate – fell to 9.7%. Private payrolls swelled by 245,000 jobs and private payroll wages grew more than 2.5 percent year-over-year. Within the employment sectors, construction employment grew at the highest rate, more than doubling the rate of total non-farm job growth.

Construction data and sentiment appear to be moving in diverging directions after the first two months of 2016. Government data released on March 1 estimated that total construction spending in January 2016 was $1,140.8 billion, and increase of 1.5 percent compared to the upwardly revised $1,123.5 billion total in December. January’s volume was ten percent higher than the previous January. The report, which also showed permits for construction trending higher than starts, supports the forecast from most construction economists of growth between five and ten percent for the full year. Public construction spending grew 4.5 percent over December, a continuation of a much stronger upward trend, while private investment was up modestly. The data portrays a market that may reflect the sentiment of mid-2015, however, as corporate profits, business investment forecasts and other economic metrics are less robust than construction.

The government’s report on the housing market two weeks earlier showed continued strength, with construction of multi-family remaining in an upward trend. But, in the context of data on new and existing home sales and builders’ sentiment, it’s also clear that the uncertainty about the economy is sapping momentum.

On February 17, the Census Bureau reported that total housing starts rose 1.8 percent from January 2015 to January 2016 despite a 3.8 percent decline from December to January and a 2.8 percent drop the month before. Single-family starts increased 3.5 percent but multi-family starts fell 3.8 percent. Building permits, however, rose 14 percent year-over-year, with single-family permits up 9.6 percent and multi-family permits increasing by18 percent. There were permits for more than 90,000 more multifamily units in January than starts, suggesting more projects may begin soon.

Also on February 17, the American Institute of Architects reported that the January Architectural Billings Index (ABI) slipped to 49.6, down from 51.3 in December. While barely negative – a reading below 50 merely indicates that more architects reported a decline in billings than an increase – the January decline is the third dip below 50 in the past six surveys. New project inquiries also fell significantly in January, although remaining positive at 50.3, a level that was ten points below the December reading.

To the extent that inquiries indicate the future billings, January’s survey raises concerns because the 12-month trend in inquiries has turned slightly downward. If the declining trend continues, it will lead to declining billings and eventually, declining construction activity.

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