First things first, the Workyard Team would like to wish you a happy New Year! As we look back on 2018, we wanted to dive into some publicly available data for the US construction industry. Our hope is to gain a high-level understanding of the state of the industry and provide some key takeaways. This report will cover:
- Residential Construction
- Construction Spending
- Construction Employment
- Construction Wages
- Commercial Construction
- California Spotlight
Residential Construction Data
First let’s take a look at residential construction data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
Privately‐owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,328,000. This is up 5% from October and up 0.4% from last November.
Looking at the data on a regional level, the largest % increase in permits authorized was in the South where we saw a 7.3% uptick from Nov 2017 to Nov 2018. The largest % decrease was in the West where permits authorized fell by 11%.
Privately‐owned housing starts in November were at a seasonally adjusted annual rate of 1,256,000. This is up 3.2% from the October number of 1,217,000 but is down 3.6% from November 2017.
Breaking down the data on a regional level, we saw the largest % increase from Nov 2017 to Nov 2018 in the Northeast at 33.3%. The largest % decrease was in the West at 18.4%.
Other notable data points in this report:
- Single unit housing starts are down 13.1% from Nov 2017 to Nov 2018
- Housing starts for 5 units or more are up by 20.2% from Nov 2017 to Nov 2018 and up 24.9% from Oct 2018
$1,308,848,000,000 was the total value of construction put in place in October 2018. Spending is up 4.9% from Oct 2017 but down 0.1% from Sept 2018. This data is drawn from the Value of Construction Put in Place Survey conducted by the US Census Bureau which “provides monthly estimates of the total dollar value of construction work done in the U.S”.
Digging further into the data, we see that residential spending ($545,066,000,000) is up 1.7% from Oct 2017 but down 0.5% from Sep 2018. Nonresidential spending ($763,782,000,000) is up 7.3% from Oct 2017 and up 0.1% from Sept 2018. Some notable growth in spending on the nonresidential side: lodging is up 18.9% from Oct 2017 and water supply projects are up 23% from Oct 2017. All of these numbers are seasonally adjusted annual rates and include private and public construction spending.
According to data from the Associated General Contractors of America (AGC), “construction employment increased by 5,000 jobs in November and by 282,000 jobs over the past year while the industry’s average pay continued increases and unemployment decreased to a historic low.”
Other notable data points regarding construction employment:
- Construction employment totaled 7,312,000 in November, a gain of 4% over the past 12 months
- Employment in residential construction grew by 7,900 jobs for the month of November and 127,900 jobs over the past 12 months, a 4.7% increase
- Employment in nonresidential construction went down by 3,600 jobs in November but grew by 154,100 jobs during the past year, a 3.6% increase
Furthermore, according to a survey of construction companies released by the AGC in August, 80% of survey respondents reported difficulty filling hourly craft worker positions and 62% of respondents reported paying higher wages to attract and retain workers. This echoes the trend of a nationwide labor shortage in the construction industry that we’ve seen developing over the past few years.
Areas that added the most construction jobs over the past year (as of Nov. 29, 2018):
- The Houston-The Woodlands-Sugar Land, TX (25,600 jobs, 12 %)
- Phoenix-Mesa-Scottsdale, AZ (16,700 jobs, 14%)
- Dallas-Plano-Irving, TX (13,100 jobs, 9%)
- Orlando-Kissimmee-Sanford, FL (11,700 jobs, 16%)
Areas that lost the most construction jobs over the past year (as of Nov. 29, 2018):
- Middlesex-Monmouth-Ocean, NJ (-3,900 jobs, -10%),
- Baltimore-Columbia-Towson, MD (-2,100 jobs, -3%);
- Sacramento–Roseville–Arden-Arcade, CA (-1,500 jobs, -2%);
- Camden, NJ (-1,100 jobs, -5%)
Average hourly earnings of all construction employees was $30.28 in Nov 2018, up 0.23% from October and 3.7% from Nov 2017, according to data reported by the Federal Reserve.
Additionally, average hourly earnings in construction are now 10.7% higher than the average for all nonfarm private-sector jobs, which rose 3.1% in the past year, to $27.35 (Source: AGC).
Cost of Materials
Another important consideration for construction companies is the cost of materials. We looked at Producer Price Index (PPI) data reported by the US Bureau of Labor Statistics (downloaded via the AGC) to gain a quick understanding of the movement of materials prices.
The PPI for “Inputs to the construction industries” is up 4.9% from Nov 2017. Other notable pricing movements (“Changes in PPIs for processed goods important to construction”):
- Cement: up 2.6%
- Fabricated structural metal: up 12%
- Lumber and plywood: down 5.1%
- Brick and structural clay tile: up 1.0%
- Flat glass: up 2.2%
- Gypsum products: up 2.0%
Next, we looked at the USG Corporation + US Chamber of Commerce Commercial Construction Index to get a gauge on the commercial sector. According to this report, “the commercial construction industry is home to more than three million workers and contributes more than $700 billion in construction spending to the U.S. economy.”
The overall Commercial Construction Index was reported at 75 for Q4 2018 — “[remaining] stable quarter-over-quarter [and] reflecting a robust commercial construction market.” The commercial construction index is comprised of three components: (1) the ratio of current backlog to ideal backlog, taking the mean of the ratio across all survey respondents; (2) the mean of all responses, on a scale of 1-10, to the question “How confident are you that the U.S. market will provide your company with sufficient new business opportunities?”; (3) a compilation of contractors’ ranges of expected revenue growth/decline, transposed to a 10-point scale, taking the mean of responses on that scale.
Here are some key takeaways from the Commercial Construction Index Report:
- Increased use of technology: 74% of contractors expect the emergence of tech in construction to grow considerably in the next three years (Examples of technology include drones, AR/VR, RFID tagging and reality capture)
- Materials cost: The top market trend in Q4 2018 is the growing unease among contractors about material cost fluctuations and shortages
- Backlog: The average level of backlog this quarter is 10 months, which exceeds the levels reported in Q2 2018 but is lower than the average of 10.3 reported in Q3
- Skilled workers: The availability and skill level of workers has also been a concern for seven straight quarters
- Contractors in the West (70%) report more difficulty finding skilled workers compared with their counterparts in the Midwest (58%), South (53%) and Northeast (52%)
- Over 50% of contractors say they plan to employ more people in the next six months
- Top Categories of Skilled Labor With Greatest Shortages:
At the moment, the Workyard Skilled Worker Service is only available in California. With our US headquarters in the San Francisco Bay Area, we find ourselves working closely with California-based construction companies.
In 2017, the construction industry in California contributed $107.5 billion (3.9%) of the state’s GDP of $2.7 trillion.
Construction employment in California in August 2018 totaled 855,700, an increase of 5.0% from August 2017, but 9% less than the state’s peak in February 2006.
Pay for construction industry employees in California was $67,600 in 2017, 3% more than the state average for all private-sector employees. Here are the 5 most numerous construction jobs and median annual pay in California (Source: AGC of America):
Here’s to a great 2019
2018 has come to a close. As we look towards the promise of 2019, we also reflect back on this past year. Our team and business has grown tremendously, and we’ve put many critical learnings into practice. Here’s to a great 2019 for all our customers, partners, and users. Let’s build it.
What’s your take?
After reading through this report, what are your key takeaways? Where do you think the industry will be this time next year? What challenges are you experiencing? It would be great to hear from you — leave a comment below!