October 2019’s Nonresidential Construction Starts +7% M/M and +5% YTD

ConstructConnect announced today that the latest month’s volume of construction starts, excluding residential work, was $38.7 billion (green shaded box, Table 3 below),+6.5% versus September’s figure of $36.3 billion (originally reported as $34.7 billion). From September to October, there is usually a change of -4% in total nonresidential starts due to seasonality. October’s result was supported by $6 billion in mega project startups (i.e., 3 projects of more than $1 billion each), surpassing $2.3 billion of such work (from 2 projects) in September.

To date in 2019, there have been 29 mega project initiations with a total estimated valuation of $72 billion compared with 16 such projects in the first 10 months of last year, for $40 billion.

October 2019’s total nonresidential starts level was almost an exact match for October 2018 (+0.3%). October 2019’s year-to-date volume was +4.5% above January-October of last year.

‘Smoothed’ Series ‒ Grand Total Neither Up Nor Down

Since large project groundbreakings can often introduce notable volatility in the monthly ‘starts’ numbers and their period-to-period percentage changes, it is informative to also study ‘smoothed’ series, such as are set out in the middle columns of Table 3 below.

On a 12-month moving average basis, October 2019’s total nonresidential starts were +6.0% versus the previous 12 months (i.e., November-2018-to-October-2019 vs November-2017-to-October-2018). Type-of-structure sub-category starts on the same 12-month-over-prior-12-month terms in October 2019 were: commercial, -5.7%; industrial, +57.4%; institutional, +1.6%; and engineering, +9.2%. In nominal dollars, engineering starts have been three times greater than industrial year to date.

The ‘smoothed’ grand total of starts, which includes residential, was flat (+0.2%) in October. Residential activity has been -8.7% on a 12-month moving average basis, with multi-family starts reversing (-12.8%) about twice as quickly as single-family groundbreakings (-6.8%).

‘Starts’ as a Leading Indicator     

The ‘starts’ figures appearing in this report’s tables and graphs are not seasonally adjusted (NSA). Nor have they been altered to remove the effects of price changes, otherwise known as inflation. They are expressed in what are termed ‘current’ as opposed to ‘constant’ dollars.  

‘Nonresidential building’ plus ‘engineering/civil’ work accounts for a larger share of total construction than residential activity. The former’s combined proportion of total put-in-place construction in the Census Bureau’s latest report, for September, was 61%; the latter’s was 39%.

ConstructConnect’s construction starts are leading indicators for the Census Bureau’s capital investment or put-in-place series. Also, the reporting period for starts (October 2019) is one month ahead of the reporting period for the investment series (September 2019).

Construction Overview – Monthly Average Jobs Growth -56%

The total number of jobs in the U.S. construction sector rose by +10,000 in October, cutting the year-to-date monthly average to +13,000. This year’s monthly average jobs increase has fallen more than 50% below last year’s pace of +29,000. The NSA unemployment rate in the sector has bobbed up to 4.0% from 3.2% the month before. A year ago, in October 2018, it had been 3.6%.

Construction’s year-over-year jobs climb of +2.0% is still beating the economy-wide ‘all-jobs’ performance of +1.4%, but it has not kept up with ‘education and health,’ at +2.7%, and ‘leisure and hospitality,’ +2.4%. Nevertheless, +2.0% is far better than manufacturing’s +0.4% or retail’s -0.1%.

October’s year-over-year employment changes in subsegments of the economy with close ties to construction were: ‘oil and gas extraction,’ +11.8%; ‘machinery and equipment rental,’ +8.9%; ‘real estate activities,’ +2.7%; ‘architectural and engineering services,’ +2.4%; ‘cement and concrete product manufacturing,’ +1.3%; and ‘building material and supplies dealers,’ +0.7%.

M/M, Y/Y, and YTD Results ― Strength in Rapid Transit and Mixed-Use Industrial Work

The +6.5% elevation in total nonresidential starts month-over-month (m/m) in October arose in almost every type-of-structure subcategory with only commercial, at -23.4%, holding back. Industrial was +232.1%; heavy engineering/civil, +15.1%; and institutional, +11.8%. October’s starts featured strength in rapid transit and mixed-use industrial work (see Top 10 Project Starts in the U.S. - October 2019).

The flatline record (+0.3%) of October 2019’s nonresidential starts relative to October 2018 (y/y) resulted from declines in industrial (-40.5%) and commercial (-21.4%) that were entirely counterbalanced by a surge in engineering (+8.8%), while institutional (-0.4%) was sidelined.

Concerning the +3.5% improvement in total nonresidential starts, January-October 2019 versus January-October 2018 (ytd), industrial (+51.3%) and engineering (+26.0%) have been the drivers, with commercial (-6.3%) and, to a lesser extent, institutional (-2.2%), acting as anchors.

Higher Education a Drag; Passenger Terminals and Arenas Provide Pizzazz

At more than one-third, ‘road/highway’ work has accounted for the largest share (36%) of engineering starts to date in 2019. In percentage-change terms, however, street starts in October were underwhelming: +7.2% y/y, but -1.7% m/m and -0.4% ytd. The standout among engineering subcomponents this year (with a 24% share) has been ‘miscellaneous civil.’ Its metrics in the latest month were +141.1% y/y, +61.6% m/m and +33.3% ytd. Light rail extension projects appear prominently among October’s Top 10 groundbreakings (see Top 10 Project Starts in the U.S. - October 2019).

‘Private office’ work has made up about one-quarter (24%) of total commercial starts so far this year. In October, such starts were +15.7% m/m and +8.4% y/y, but they were little changed from 2018 ytd, -0.9%. ‘Hotels/motels,’ ‘warehouses,’ and ‘miscellaneous’ have been carrying almost equal weight (15% to 16%) within commercial so far this year. ‘Hotel/motel’ starts in October were -0.9% m/m, but more severely depressed y/y, -30.8%, and ytd, -28.5%. ‘Warehouse’ work has been -59.8% y/y and -50.2% m/m, but not as much in the hole ytd, -13.7%. ‘Miscellaneous commercial’ has been -69.8% m/m, but +56.7% y/y and +53.6% ytd, with support for the ytd percentage change coming from ‘passenger terminals,’ +86.7% ytd, and ‘sports arenas,’ +27.9% ytd.   

‘School/college’ starts have contributed 59% to the institutional total to date in 2019, but their performance has been restrained: -9.3% y/y and -7.3% m/m, while managing a minuscule gain of +0.7% ytd. ‘College/university’ starts, at -7.0% ytd, have been the source of lethargy. In the medical field, ‘hospital/clinic’ starts had a good month in October: +107.3% m/m; +82.6% y/y; and +12.3% ytd. ‘Nursing/assisted living’ starts have been -17.0% ytd and ‘miscellaneous medical’ starts, -28.2% ytd. Combined medical work has provided a 28% share towards total institutional.

JOLTS’ Message More Muted and a Flattening in Trend Graphs

From Graph 1, construction job openings, measured as either a ‘rate’ or a ‘level,’ continue to be historically high. Worth noting, though, is that openings for all jobs in the economy, while also high, have been slightly receding over the past 12 months. One might suppose that construction job hires would also be above previous peaks. Such is not the case, however, as is made clear in Graph 2. The ‘level’ continues to slowly rise, but is still well below where it was in the early 00s. The hires ‘rate’ remains anemic, stuck in a range between 5.0% and 5.5%. The all-jobs hires numbers have ceased soaring rapidly, but they are still even with or above prior summits.

Most of the 12-month-moving-average trend lines (Nonresidential Construction Starts Trend Graphs - October 2019), have been displaying either a flattening or a mild tendency to slope downwards of late. That’s certainly been the case for ‘nonresidential buildings’ (Graph 1), ‘institutional’ and ‘commercial’ (Graph 2) ‘private office buildings’ (Graph 3), ‘schools’ and ‘hospitals’ (Graph 4) ‒ with the former showing some recent downdraft and the latter some recent uplift ‒ and ‘water/sewage’ (Graph 5). ‘Retail’ (Graph 3) continues to plummet. ‘Heavy engineering’, though, has some subcategories with curves that are moving smartly higher, especially ‘bridges’ and ‘miscellaneous civil’ (Graph 6).

Graph 1: U.S. Construction Job Openings (from JOLTS Report)
(3-month Moving Averages placed in Latest Month)

Wage Gains – Nothing Special for Construction Workers

Tables B-3 and B-8 of the monthly Employment Situation report record average hourly and average weekly wages for industry sectors. B-3 is for all employees (i.e., including bosses) on nonfarm payrolls. B-8 is for ‘production and nonsupervisory personnel’ only (i.e., it excludes bosses). For ‘all jobs’ and construction, there are eight relevant percentage changes to consider.

From October’s BLS Table B-3 (including supervisory personnel), the ‘all-jobs’ earnings increases were +3.0% hourly and +2.7% weekly. Construction workers as a subset of ‘all-jobs’ did less well hourly, +2.4%, but outperformed weekly, +3.7%. From the latest Table B-8 (excluding bosses), the all-jobs compensation leaps were +3.5% hourly and +3.2% weekly. Relatively speaking, construction workers fell behind both hourly, +2.0%, and weekly, +2.8%.

Construction Costing ‒ Quieter Results in October vs September

October 2019’s y/y results for three BLS Producer Price Index (PPI) series were: ‘construction materials special index,’ -2.1% (the same decline as in September); ‘inputs to new construction index, excluding capital investment, labor and imports,’ -0.4% (a worsening from September’s +0.3%); and ‘final demand construction,’ +3.9% (down from the previous month’s +5.5%).

The value of construction starts each month is derived from ConstructConnect’s database of all active construction projects in the U.S. Missing project values are estimated with the help of RSMeans’ building cost models. ConstructConnect’s nonresidential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are super-large, has a history of being more volatile than many other leading indicators for the economy. 

ConstructConnect’s total residential starts (i.e., single-family plus multi-family starts) in the latest month were -4.7% m/m, -12.1 y/y and -9.0% ytd. To date in 2019, the multi-family segment of residential (-15.1%) has gone in arrears even more than the single-family (-6.2%) market. ‘Grand total’ construction starts in October were +2.0% m/m, -4.8% y/y, and -0.7% ytd.

ConstructConnect has moved to a better-targeted and research-assigned ‘start’ date. (Prior to January 2017, the ‘start’ date was recorded as occurring within 30 to 60 days of the announced bid date.) In concept, a ‘start’ is equivalent to ground being broken for a project to proceed. If work is abandoned or re-bid, the ‘start’ date is revised to reflect the new information.

Click here to download the Construction Industry Snapshot Package - October 2019 PDF.

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