Construction employment, pay rise in September; Dodge Momentum Index drops

Nonfarm payroll employment in September declined by 33,000, seasonally adjusted, from August but increased by 1,777,000 (1.2%) year-over-year (y/y), the Bureau of Labor Statistics (BLS) reported today. The unemployment rate fell to 4.2% from 4.4% in August. BLS noted, "A sharp employment decline in food services and drinking places and below-trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey." The agency posted a fact sheet discussing possible impacts on employment, reporting and methodology. Construction employment increased by 8,000 for the month and 184,000 (2.7%) y/y. The September total, 6,911,000, was the largest since October 2008; however, previous estimates for August and July were reduced by 15,000 and 6,000, respectively. Average hourly earnings in construction increased 3.0% y/y to $29.19, or 9.9% higher than the average for all private-sector employees ($26.55, a rise of 2.9% y/y). The unemployment rate in construction, not seasonally adjusted, was 4.7%, and the number of unemployed jobseekers with construction experience was 433,000, the lowest September figures for both series since 2000. (Not-seasonally-adjusted employment may be affected by normal weather and holiday patterns and thus should not be compared to levels in other months.)

         "The Dodge Momentum Index fell in September, moving 8.4% lower...from the revised August reading," Dodge Data & Analytics reported today. The index "is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The institutional building component fell 11.5% from August, while the commercial building component fell 6.1%. While the overall...index has lost ground for four consecutive months, this should not be seen...as a predictor of a turn in building markets. Prior to the previous peak...in January 2008 [the index] had suffered similar significant declines, only to post strong gains in subsequent months in line with overall economic growth. Similarly, the...index posted healthy gains from late 2016 through early 2017. Economic growth remains solid, and building market fundamentals are supportive of further growth in construction activity."

         Investment analyst Thompson Research Group issued its third-quarter survey of producers of aggregate, cement and concrete on Thursday, including discussion of impacts from Harvey and Irma. "We continue to receive feedback that there are still a lot of big projects on the books, but these are having a tough time getting started up due to a variety of delays, including permitting taking longer, difficulty securing labor, more complex engineering needs due to the size of projects to name a few. ...Several also cited residential developments outside of city center, from the west coast to the east coast....From steel stud manufacturers to aggregate producers to national commercial contractors, [TRG contacts] all point to some of the largest contractor backlogs they have seen in years....Contractor backlogs are essentially set through 2019 and many are looking forward to 2020. So there is big business on the come, but the end market just hasn't seen that big surge in volumes (yet)....It's not just commercial construction contractors that are seeing delays in project starts—it's also impact[ing] big road builders. With highway and street [estimates from the U.S. Census Bureau of] total dollar value [put in place (PIP)] declining for four consecutive months and given FAST Act and state-led funding increases, we (and our industry contacts) are asking why we haven't seen an increase in PIP. Contacts were candid in saying they could not explain the difference and do not even track the Bureau's PIP data. When asked which of the explanations specifically were impacting their DOT projects, there was a unanimous, 'we are not seeing those issues. We're moving full-steam ahead.' In fact, our contacts are expecting a robust FY 2018 letting schedule, similar to feedback from contractors."

         The outlook appears to be brightening for manufacturing construction, even though Census reported on October 2 that spending in the first eight months of 2017 combined slumped 12% from the same period of 2016. In the past three weeks, GM, Ford, Mercedes-Benz, Volvo and Toyota have announced plans to build or expand vehicle and battery plants. The Wall Street Journal reported on September 19 that Sentury Tire "is moving forward with plans to develop a $530 million plant in LaGrange, Ga....Industrial build-to-suit projects under way in the U.S. at midyear 2017 totaled 50.5 million square feet, compared with 41.2 million square feet at the same time last year, according JLL" real-estate services. The Journal reported on Wednesday, "Foxconn Technology Group says it plans to locate a display screen factory in the southeastern Wisconisn village of Mount Pleasant....The Wisconsin legislature approved a $3 billion incentive package for Foxconn." However, the timing for construction of many of these projects remains uncertain.

         A rising stock market generally enables universities to complete capital campaigns and tap rising endowments to fund more construction. However, "gifts are changing," the Journal reported on Wednesday. "Rather than pledging dollars for new academic buildings, donors are investing in a business school's ability 'to change or to innovate' in a competitive environment, said Dan LeClair...at the Association to Advance Collegiate Schools of Business." Census totals for both private and state and local higher education construction spending have declined y/y for the past several months after setting records in 2015-16. 

         Census posted new Job-to-Job Flows (J2J) data and data tools on Thursday that show hiring and separation totals from industry to industry and state to state. As an example, Census noted, "Texas' manufacturing hires are more likely to come from jobs in construction, while California's manufacturing hires are more likely to come from jobs in retail trade."

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