Construction Sector Defies Rising Costs and Interest Rates, Continues Upward Trend
The Marcum Commercial Construction Index for the first quarter of 2024 reports that the construction industry continued growing despite various challenges. The index is produced by Marcum’s National Construction Services group.
The construction industry continues to benefit from massive investment in manufacturing structures. “Construction spending on manufacturing structures is up 184% over the past four years,” said Anirban Basu, Marcum’s chief construction economist and report author. “Given the size of many of these projects and ongoing efforts to strengthen the nation’s semiconductor, clean energy and electric vehicle production capacity, the manufacturing-related construction segment will retain momentum through the entirety of 2024.”
Input prices, after remaining relatively flat throughout 2023, resumed rising during the first quarter. “Prices for inputs to construction increased sharply in March,” said Basu. “This is partly due to global supply chain issues, with new bottlenecks arising in the Red Sea, the Panama Canal and the Port of Baltimore.”
In addition to rising input prices, the industry must grapple with higher-for-longer interest rates. “The year’s first quarter has squashed any hopes of imminent interest rate cuts,” said Basu. “Inflation has accelerated and now appears to be stickier than anticipated. Most forecasters now expect one rate cut at most in 2024, and not until the end of the year.”
Despite higher interest rates and rising material costs, the industry continues to expand. “The construction industry added jobs for the 13th straight month in March,” said Basu. “Nonresidential construction has added jobs at a particularly rapid pace lately, with employment in the category up 5.5% over the past year. That compares favorably to both the broader construction industry (up 3.2% year over year) and all industries (up 1.8%).”
Unfortunately, rapid employment growth has come with rapid wage increases. “Average hourly earnings for construction workers are up 5.2% over the past year, well above the 3.9% increase observed across all industries,” said Basu. “Higher wages put upward pressure on construction costs, exacerbating the effects of high interest rates and tight lending standards.”
While the overall industry will likely retain momentum throughout 2024 due to strong manufacturing- and infrastructure-related construction activity, others may struggle. “As project financing becomes increasingly difficult to secure, certain segments, including those not boosted by infrastructure on manufacturing-related federal programs, will struggle,” said Basu.
Marcum’s national construction leader, Joseph Natarelli, said, “I continue to be encouraged at the resilience and momentum our industry has showcased, particularly in the manufacturing sector, where spending has surged dramatically. While we navigate through the challenges of rising input costs and persistently high interest rates, it is crucial for construction businesses to maintain a vigilant approach to cost control and financial planning. Securing project financing has become a competitive edge in this current climate. Companies should also invest in efficiency and innovation to mitigate the impact of increased wages and input prices. Our industry is robust and growing, but success will largely depend on strategic foresight and the agility to adapt to the economic landscape.”
Construction Materials Prices Decrease in May for the First Time Since December
Construction input prices decreased 0.9% in May compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data released June 13. Nonresidential construction input prices decreased 0.8% for the month.
Overall construction input prices are 2.1% higher than a year ago, while nonresidential construction input prices are 2.2% higher. Prices decreased in two of the three energy subcategories last month. Crude petroleum prices were down 8.7%, while unprocessed energy materials prices decreased 6.6%. Natural gas prices were up by 1.7%.
“For contractors, this data provides excellent news along two fronts,” said ABC Chief Economist Anirban Basu. “First, construction input prices fell for the first time since December and, despite rising somewhat sharply over the first four months of 2024, are up just 2.1% year over year. Second, the Producer Price Index’s economy-wide measure of final demand prices fell in May. This, along with yesterday’s [June 12] cooler than expected Consumer Price Index data, signals slowing inflation and that the Federal Reserve may begin to cut rates sooner than expected. With contractor confidence regarding profit margins at the lowest level in seven months according to ABC’s Construction Confidence Index, falling materials prices and the prospect of lower interest rates in 2024 are welcome developments for the construction industry.”
Dodge Momentum Index Improved 3% in May
The Dodge Momentum Index, issued by Dodge Construction Network, increased 2.7% in May to 179.0 (2000=100) from the revised April reading of 174.3. Over the month, commercial planning progressed 5.5% and institutional planning slowed by 3.4%.
“Owners and developers are gaining confidence in 2025 market conditions, alongside more stable and predictable interest rates—spurring stronger commercial activity over the month,” stated Sarah Martin, associate director of forecasting at Dodge Construction Network. “Conversely, after last year’s growth, institutional planning is decelerating, as high material costs, labor shortages and elevated interest rates seep into planning decisions. The overall DMI remains 40% higher than May 2019 levels, indicating a steady pipeline of construction projects that will be ready to break ground through mid-2025.”
Data center planning supported growth on the commercial side of the index in May, alongside a steady acceleration in retail planning over the last six months. Marginal increases in project activity were also seen in hotel and warehouse planning. For the third consecutive month, healthcare and education planning activity slowed—constraining total institutional planning momentum. Public project planning activity also slackened this month, while the value of amusement planning projects has been picking up speed recently. In May, the DMI was 7% lower than year-ago levels, following an abnormally strong May 2023. The commercial segment was up 8% from year-ago levels, while the institutional segment was down 32% over the same period.
A total of 19 projects valued at $100 million or more entered planning throughout the month of May. The largest commercial project included the $500 million renovation of the former Mirage Hotel to a Hard Rock Hotel and Casino in Las Vegas, Nevada. The next two largest commercial projects to enter planning included the $495 million Prime Data Center in Fort Worth, Texas, and the $481 million Prime Data Center in Garland, Texas. The largest institutional projects to enter planning were the $377 million renovation project to Neyland Stadium at the University of Tennessee and the $350 million Woodland Research and Technology Office in Woodland, California.
The DMI is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year.
Construction Employment Increases by 21,000 Between April and May with Job Gains at Both Nonresidential and Residential Construction Firms
The construction industry added 21,000 jobs in May and 251,000 jobs over the past year, with increases at both nonresidential and residential construction firms, according to an analysis of new government data the Associated General Contractors of America released June 7. Association officials noted that nonresidential contractors report continuing difficulty filling positions despite the job gains, and they urged government officials to boost support for career development and allow more employment-based immigration.
“Construction firms have been adding workers at a faster clip than most sectors,” said Ken Simonson, the association’s chief economist. “But contractors say they are still having trouble finding enough skilled workers to meet the demand for data centers, manufacturing plants, renewable energy and infrastructure projects.”
Construction employment in May totaled 8,228,000, seasonally adjusted, a gain of 21,000 from April. Residential construction firms—homebuilders and specialty trade contractors—added 3,500 employees. The three types of nonresidential contractors added a total of 17,100 employees: 3,000 at nonresidential builders, 13,000 at nonresidential specialty trade contractors and 1,100 at heavy and civil engineering construction firms.
The industry added 251,000 jobs between May 2023 and last month, an increase of 3.1%. Employment at nonresidential construction firms rose by 179,000 or 3.8%, more than double the 1.8% increase in total nonfarm employment. Residential construction employment increased by 71,900 or 2.2%.
Average hourly earnings for production and nonsupervisory employees in construction—covering most onsite craft workers as well as many office workers—climbed by 4.3% over the year to $35.45 per hour. Construction firms in April provided a wage “premium” of 18.2% compared to the $29.99 average hourly earnings for all private-sector production employees.
Construction Backlog Indicator Inches Lower in May, Contractors Remain Confident
Associated Builders and Contractors reported June 11 that its Construction Backlog Indicator fell to 8.3 months in May, according to an ABC member survey conducted May 20 to June 4. The reading is down 0.6 months from May 2023.
Backlog declined on a monthly basis for every company size except those contractors with greater than $100 million in annual revenues. On an annual basis, backlog is down for contractors of all sizes.
ABC’s Construction Confidence Index readings for profit margins and staffing levels fell slightly in May, while the reading for sales improved. All three readings remain above the threshold of 50, indicating expectations for growth over the next six months.
“Over a year has passed since the Federal Reserve raised the target range of the federal funds rate above 5%,” said ABC Chief Economist Anirban Basu. “Despite widespread expectations that rates will remain elevated through at least the end of the year, contractors remain confident about the future, with a majority of contractors expecting their sales and staffing levels to expand over the next six months.
“Although backlog has been lower in 2024 than it was during 2023, it has also been stable,” said Basu. “While significant spending activity in manufacturing and infrastructure-related segments has kept contractors busy, input cost escalation has reemerged in recent months. As a result, contractor confidence regarding profit margins has fallen to the lowest level since November 2023.”
Single-Family and Multifamily Production Headed in Opposite Directions Across Geographies
Fueled by a lack of existing inventory and pent-up demand, single-family permit growth is occurring across all tracked geographic regions of the nation while the opposite holds true for the multifamily sector, according to the latest findings from the National Association of Home Builders Home Building Geography Index for the first quarter of 2024.
“While single-family construction expanded in the first quarter despite higher mortgage rates, multifamily construction for 2024 is experiencing a notable slowdown primarily because financing conditions are tight and there are more than 900,00 apartments under construction, near the highest rate since 1973,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas. “This is the first time since the inception of the HBGI that all tracked multifamily geographic areas registered negative permit growth rates.”
“The strength in single-family construction at the start of the year was particularly concentrated in higher density areas, as return-to-office trends lifted demand in inner suburbs,” said NAHB Chief Economist Robert Dietz. “This corresponds with other data indicating a gain for townhouse construction at the start of 2024. In contrast, the apartment construction slowdown is disproportionately affecting higher density markets, where high levels of construction inventory, elevated costs and tight financing is impeding multifamily supply.”
The HBGI is a quarterly measurement of building conditions across the country and uses county-level information about single- and multifamily permits to gauge housing construction growth in various urban and rural geographies.
Total single-family permits in the first quarter across the United States stood at approximately 240,500, which is 23.8% higher than the level in the first quarter of 2023 (194,200). The growth rates for all of the HBGI geographic regions were positive in the first quarter, with five of the seven posting double-digit gains.
Breaking down the nation’s seven metro and county areas, the first quarter HBGI shows the following market shares for single-family home building:
• 16.1% in large metro core counties
• 24.9% in large metro suburban counties
• 9.6% in large metro outlying counties
• 28.8% in small metro core counties
• 10.0% in small metro outlying areas
• 6.5% in micro counties
• 4.2% in non-metro/micro counties
The first quarter HBGI shows the following market shares for multifamily home building:
• 37.6% in large metro core counties
• 26.8% in large metro suburban counties
• 3.6% in large metro outlying counties
• 24.1% in small metro core counties
• 4.0% in small metro outlying areas
• 2.8% in micro counties
• 1.1% in non-metro/micro counties
The full HBGI data with geographic market shares and growth rates can be found at nahb.org/hbgi.
Construction Spending Slips 0.1% in April as Decreases in Public Segments Offset Rise in Homebuilding, Manufacturing, Power Projects
Total construction spending inched down from March to April with declines in public projects and a mixed pattern among private residential and nonresidential categories, according to an analysis of a new government report that the Associated General Contractors of America released June 3. Association officials noted that construction spending levels remain well above where they were a year ago and that most firms continue to struggle to find enough qualified workers to hire.
“Overall spending slipped despite upturns in manufacturing and power construction and a slight pickup in single-family homebuilding,” said Ken Simonson, the association’s chief economist. “Most public segments continued a seesaw pattern, with decreases in April following gains in other recent months.”
Construction spending, not adjusted for inflation, totaled $2.099 trillion at a seasonally adjusted annual rate in April. That figure is 0.1% below the upwardly revised March rate, but 10.0% above the April 2023 level.
Spending on private nonresidential projects declined 0.3% on balance in April but rose 8.3% year-over-year. The largest private segment, manufacturing construction, climbed 0.9% for the month and 17.1% over 12 months. Commercial construction fell 1.1% in April and was virtually unchanged from a year earlier. Investment in power, oil, and gas projects edged up 0.1% in April and rose 7.4% year-over-year.
Spending on private residential construction ticked up 0.1% for the month and 8.0% year-over-year. Single-family construction rose for the 12th month in a row, by 0.1%, and 20.4% year-over-year. Multifamily spending fell 0.3% in April but climbed 2.3% from April 2023.
Public construction spending fell 0.3% for the month but rose 16.7% from a year earlier. The largest public segment, highway and street construction, fell 0.5% in April but rose 16.4% over 12 months. Public educational spending fell 0.2% in April but rose 16.8% over the year.
Report Details Massive Federal Funding Gap for Workforce Prep Compared to Degree Programs Despite Persistent Labor Needs
Only one-fifth of federal investments in postsecondary education support workforce development for fields like construction and manufacturing, while the rest of the money goes to “traditional” degree programs according to a new report on federal workforce funding levels. The report, which was produced by the Progressive Policy Institute, the Associated General Contractors of America and Procore, notes that this funding gap is making it hard for many employers to find qualified workers to hire.
“If the United States does not act now to ensure the nation’s workforce is prepared for open job opportunities, more Americans will be unqualified for work and employers will continue to struggle to find talent and remain competitive,” the report notes. “Yet policymakers continue to undervalue the importance of workforce development and instead prioritize investments in degree programs that often aren’t needed to get a good job.”
The report, “Building a Stronger Workforce: Federal Spending on Postsecondary Education and Training,” notes that of the $139.5 billion the federal government spends annually on postsecondary education, only $28.2 billion goes to workforce education and training programs. The other $111.3 billion supports “traditional” degree programs that only 38% of Americans complete.
The funding gap is making it hard for employers in fields like construction and manufacturing, which typically require specific training not offered by traditional degree programs, to find enough qualified workers to keep pace with demand. The report notes that the Bureau of Labor Statistics shows the construction industry alone has over 407,000 unfilled position, and that figure is expected to continue growing. Meanwhile, 88% of construction firms report having a hard time finding workers to hire.
Included in the report are recommendations on how federal policy makers can help address workforce shortages for in-demand industries. Those recommendations include increasing federal investments in workforce development, including doubling the amount of money for Perkins and other career and technical programs.
The report also recommends new investments in faster and more flexible training programs like Virginia’s FastForward program. The report urges new incentives to encourage employer-centered workforce education and training partnerships. And it cites several promising state-based workforce development programs, including the Virginia one, as well as programs in Indiana, Pennsylvania, and Colorado.
Download the report from https://tinyurl.com/22m5zvsb.
Commerce Department Announces New Industry Voluntary Pledge to Bring More Women into Construction Industry
The U.S. Department of Commerce has announced the Million Women in Construction Community Pledge to bring more women into the construction workforce—as well as several leading construction companies that have signed on to the pledge: Baker Construction, Gilbane Building Company, McKissack & McKissack, Mortenson, Power Design, Shawmut Design and Construction and Suffolk. In addition, U.S. Secretary of Commerce Gina Raimondo is making an industry-wide call for more companies, unions and training organizations to sign on to the pledge.
By signing on to the Million Women in Construction Community Pledge, leaders in the industry are demonstrating an ongoing commitment to increase women’s access to training, jobs and leadership opportunities.
Construction companies, unions and training organizations can join the initiative by pledging to focus on or scale up equitable hiring and workforce development efforts that create broader pipelines and opportunities for women. This industry-wide call to action encourages signers to voluntarily take action by utilizing best practices, including building community partnerships to reach women and girls, investing in solutions that increase supportive services such as child care, and fostering safe, healthy and respectful workplaces.
The Million Women in Construction initiative is a nationwide call to action for the construction industry—construction contractors, trade unions and training institutions—to commit to bold steps that will ensure a robust and diverse workforce in the years ahead. It will be necessary to recruit, train, hire and retain thousands of new and non-traditional workers— the next generation of skilled laborers and leaders who are prepared to rebuild U.S. infrastructure and supply chains and complement federal government investments.
SENCO Announces New Vice President of Marketing and Sales
Kyocera Senco Industrial Tools, Inc. (Senco) promoted Tom Hodson to vice president, marketing and sales, effective June 2024. In this position, Hodson leads the continued development and execution of Senco’s marketing, communications and sales growth strategies.
Hodson’s predecessor, Dave Moore, retired from the role in May. During his 17-year tenure at Senco, Moore substantially grew Senco’s hardware-wholesale business and increased the company’s presence in Canada.
Hodson has been with Senco for 21 years, beginning as a territory sales manager. Prior to this appointment, he spent six years as Senco’s director of channel marketing and national accounts where he was responsible for driving Senco’s channel strategy and growing sales with national dealers and distributors.
