The Building Tradesman Newspaper

Friday, September 21, 2018

Healthy construction industry has few worries

By The Building Tradesman

U.S. construction spending inched higher from June to July, up 0.1 percent, but spending was up 5.2 percent since the beginning of the year.

On the jobs side, construction employment increased by 23,000 jobs in August and by 297,000 jobs over the past year, reaching a 10-year high, while the industry's unemployment rate stood at an all-time low. Industry wages are also up - but only mildly. 

News of the latest state of the state of the U.S. construction industry trends comes from the Associated General Contractors, which released its analysis of the latest spending, employment and wage figures the first week of September. 

"It is striking how balanced the growth in construction spending has been so far this year," said Ken Simonson, the AGC's chief economist. "Spending totals for the first seven months of 2018 combined nearly match those for the same period of 2017. Contractors are optimistic that demand for projects will continue but many report that workforce shortages are leading to longer construction schedules and higher costs." The AGC said sustained industry growth will depend in part on contractors' ability to find increasingly scarce craft workers.

Hourly earnings in the construction industry averaged $29.95 in August, an increase of 3.3 percent from a year earlier. Average hourly earnings in construction are now 10.3 percent higher than the average for all non-farm private-sector jobs, which rose 2.9 percent in the past year, to $27.16. 

While the higher wages in both construction and the rest of the U.S. economy are welcome, economists are still vexed and divided as to the question of why wages aren't even higher given the tight labor market, and supply-and-demand forces. It's difficult for workers to get ahead when the U.S. average wage hike only matches the latest inflation rate, which as of Aug. 10, is 2.9 percent - the highest since February 2012. 

"Nominal wage growth has been slower than would be expected over the last year, particularly in light of an unemployment rate hovering around 4.0 percent," said Elise Goiuld of the labor-backed Economic Policy Institute. "In a tight labor market, employers should be finding it harder and harder to attract and retain the workers they want—and, therefore they should be raising wages in order to get them. But, that’s not happening enough to move the dial on wage growth."

By construction category, public construction spending year-to-date through the first seven months of 2018 was 5.4 percent higher compared to the same period in 2017, and up 5.2 percent for private construction. Within private construction, residential was up 7.7 percent, while nonresidential was up 2.2 percent.

Most major segments since the beginning of 2018 had gains: up 3.6 percent for highway construction, 0.6 percent for educational construction and 14.0 percent for transportation construction. Power construction edged up 0.4 percent, commercial (retail, warehouse and farm) construction rose 4.7 percent, and office construction increased 5.8 percent. Manufacturing construction declined 7.2 percent.

There have been some other, mild cautionary indicators. "In the latest Autodesk-AGC of America Workforce Survey, firms overwhelmingly plan to hire more workers, but 80 percent of firms report difficulty filling hourly craft positions, leading to longer completion times for projects." Simonson said. "This trend could drag down further gains in spending."

Dodge Data and Analytics reported on Aug. 10 that its Momentum Index fell 2.9 percent in August to 164.1 (2000=100) from the revised July reading of 169.0.  The Momentum Index is a monthly measure of the first report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.  Pushing the Momentum Index lower in August was its commercial component, which dropped 6.1 percent from July. The other components are reportedly healthy.