AGC: Construction spending hits record in October; public, private segments vary widely

(DECEMBER 1, 2017) — The weekly AGC Data DIGest reported:

  • Construction spending totaled $1.241 trillion at a seasonally adjusted annual rate in October, a record level before adjusting for inflation, 1.4% higher than in September, and 2.9% higher than the October 2016 rate, the Census Bureau reported today. Year-to-date (YTD) spending for the first 10 months of 2017 combined was 4.1% higher than in January-October 2016.
  • Public construction jumped 3.9% for the month but declined 3.4% YTD. Of the three largest public segments, highway and street construction increased 1.1% for the month but slid 4.3% YTD; educational construction soared 11% in October and rose 2.2% YTD; and transportation (transit, passenger rail, ports and airports) rose 2.0% for the month but slipped 1.6% YTD.
  • Private residential spending gained 0.4% in October and 11% YTD. New multifamily construction sank 1.6% for the month but rose 3.9% YTD; new single-family construction rose 0.3% and 9.0%, respectively; and residential improvements gained 1.4% and 17%.
  • Private nonresidential spending climbed 0.9% from September and 1.5% YTD. Of the four largest components, power (electric power plus oil and gas pipelines and field structures) dipped 0.3% for the month and 2.5% YTD; commercial (retail, warehouse and farm) fell 1.9% in October but jumped 15% YTD; manufacturing added 1.3% in October but tumbled 13% YTD; and office rose 4.4% and 4.1%, respectively.

 Detailed figures on Census’s construction spending website show that commercial spending segments exhibit a wide range of growth patterns.

  • Warehouse construction leaped 37% YTD as the mini-storage component has roughly doubled for four years in a row.
  • Shopping mall construction increased 29% YTD and shopping center construction grew 20%. These gains may reflect renovations rather than new construction; Census does not break out improvements for nonresidential categories.
  • Construction of general merchandise stores (including department and variety stores) plummeted 22% and other multi-retail (warehouse-type retail stores) spending dropped 10%. There was a similar range within food and beverage segments.
  • Construction of dining/drinking establishments climbed 15% YTD, while food-store construction increased 3% and fast-food restaurant construction plunged 29%.

 Construction of natural-gas fired power plants appears to be on the upswing. On Thursday, the e-newsletter BreakingNews reported the following projects underway or under development in western Pennsylvania and eastern Ohio, where the Utica and Marcellus shale formations are providing abundant feedstock: “Work is underway at the new $893 million Hickory Run Energy Center outside New Castle, a combined-cycle power plant…Located outside Johnstown [is] a $700 million gas-fired plant that should be under construction for the next two years. Work should wrap up in 2018 on two other plants, the $780 million Tenaska Energy project in Westmoreland County and the $900 million Lordstown plant in Ohio. The Lordstown project is phase one of two. Not far from Lordstown, near Wellsville, a $1.1 billion combined-cycle plant is going through the final planning stages.” Numerous plants are under construction or design in other regions.

 Construction employment, not seasonally adjusted, rose from October 2016 to October 2017 in 243 (68%) of the 358 metro areas (including divisions of larger metros) for which BLS provides construction employment data, fell in 59 (16%) and was unchanged in 56, according to an AGC release and map on Wednesday. (BLS combines mining and logging with construction in most metros to avoid disclosing data about industries with few employers.) The largest gains again occurred in Riverside-San Bernardino-Ontario, Calif. (14,700 construction jobs, 15%) and Las Vegas-Henderson-Paradise (10,500 construction jobs, 18%) followed by New York City (10,100 construction jobs, 7%). The largest percentage gains occurred in Cheyenne, Wyo. (24%, 800 combined jobs), followed by Las Vegas-Henderson-Paradise; Lake Charles, La. (16%, 3,600 construction jobs) and Killeen-Temple, Texas (16%, 1,600 combined jobs). The largest job losses again were in Houston-The Woodlands-Sugar Land (-7,900 construction jobs, -4%); Columbia, S.C. (-3,100 combined jobs, -18%) and the Kansas City, Mo. division (-3,000 combined jobs, -11%). The largest percentage losses again occurred in Grand Forks, N.D.-Minn. (-25%, -1,200 combined jobs); Columbia S.C. and Kansas City, Mo., along with Eau Claire, Wisc.. (-11%, -400 combined jobs). October employment was a record high for the month in 45 metros (dating back in most areas to October 1990); none set a new October low.

Economic activity continued to increase at a modest to moderate pace in October and mid-November, according to anecdotal reports from contacts across the 12 Federal Reserve districts,” the Fed reported on Wednesday in the latest Beige Book. The Beige Book is a compilation of informal soundings of business conditions in each of the districts, which are referenced by the name of their headquarters cities. “Residential real estate activity remained constrained, with most districts reporting little growth in sales or construction. By contrast, nonresidential activity was consistent with previous reports of slight growth….construction-material costs rose in most regions, with many districts citing increased lumber costs and/or increases in demand for materials due to hurricane rebuilding efforts.”

Revenues of architectural, engineering and related services firms increased 3.1% in the third quarter (Q3) of 2017 from 2017Q2 and 1.7% from 2016Q3, Census reported on November 17. This “advance” estimate did not break out architectural and engineering firms.