Employment rises in January but pay increases remain modest; 2017 spending sets record

Nonfarm payroll employment in January increased by 200,000, seasonally adjusted, from December and by 2,114,000 (1.5%) year-over-year (y/y) in all of 2017, the Bureau of Labor Statistics (BLS) reported on Friday. The unemployment rate remained at a 17-year low of 4.1% for the fourth month in a row. Construction employment increased by 36,000 for the month and 226,000 (3.3%) y/y to 7,099,000, the highest total since August 2008, but still 8% below the April 2006 peak of 7,726,000. Average hourly earnings in construction increased 2.9% y/y to $29.33, or 9.7% higher than the average for all private-sector employees ($26.74, also up 2.9% y/y). The unemployment rate in construction, not seasonally adjusted, fell to 7.3% (from 9.4% in January 2017), and the number of unemployed jobseekers with construction experience was 707,000 (down from 859,000). These were the lowest January figures in the 17-year history of both series. (Not-seasonally-adjusted data may be affected by normal weather and holiday patterns and thus should not be compared to levels in other months.) BLS made routine annual revisions to prior-year data.

Reports from BLS and the Construction Labor Research Council (CLRC) show little to no acceleration in pay and benefits. On Wednesday, BLS released the employment cost index, a measure of compensation (wages, salaries and benefits, including required payments), for the fourth quarter of 2017 (2017Q4). In the private sector as a whole, compensation increased 0.5%, seasonally adjusted, from September to December (down from 0.8% in Q3) and 2.6% from December 2016 to December 2017 (up from 2.2% in 2016 and 1.9% in 2015). Compensation for all employees in the construction industry increased 0.5% in Q4 (vs. 0.4% in Q3) and 2.4% over 12 months (vs. 1.9% in 2016 and 2.2% in 2015). Compensation for private-sector employees in construction, extraction, farming, fishing and forestry occupations (mainly construction trades) increased 0.4% in Q4 and 2.5% over four quarters (vs. 2.6% in 2016 and 1.8% 2015). Wages and salaries for these occupations increased 0.4% in Q4 and 2.8% over four quarters (vs. 3.1% in 2016 and 1.7% in 2015). Wages and salaries for all construction industry employees increased 0.4% in Q4 and 2.5% over four quarters (vs. 2.1% in 2016 and 2.6% in 2015). CLRC's latest report on local construction union agreements showed increases for the first year of contracts signed in 2017 averaged 2.6% (vs. 2.6% in 2016 and 2.5% in 2015). There was relatively little variation among the nine regions as defined by the Census Bureau (increases ranged from 2.3% in the West North Central region to 3.2% in the Southwest Pacific region) or across 18 crafts (increases ranged from 2.2% for boilermakers to 3.2% for carpenters).

Construction spending totaled $1.253 trillion at a seasonally adjusted annual rate in December, a record level before adjusting for inflation, 0.7% higher than the downwardly revised November rate, and 2.6% higher than the December 2016 rate, the Census Bureau reported on Wednesday. The annual total was a record $1.231 trillion, 3.8% higher than in 2016. Public construction edged up 0.3% for the month but declined 2.5% for the year. Of the three largest public segments, highway and street construction gained 0.3% for the month but fell 3.7% for the year; educational construction climbed 3.8% in December and 2.5% for the year; and transportation slid 0.2% for the month and 0.9% for the year, including a 29% jump in state and local airport terminal construction, offset by an 8% decrease in other public transportation (other airport, port, transit and passenger rail) construction. Private residential spending rose 0.5% in December and 11% for the year. New multifamily construction added 2.6% and 3.7%, respectively; new single-family construction gained 0.4% and 9.1%; and residential improvements fell 0.2% for the month but increased 15% for the year. Private nonresidential spending climbed 1.1% in December and 0.6% for the year. Of the three largest components, power (electric power plus oil and gas pipelines and field structures) slid 0.5% for the month and 4.2% for the year; commercial jumped 1.6% and 14%, respectively (comprising retail, up 5.9%; warehouse, up 36%; and farm, up 0.6%); and manufacturing fell 0.5% and 13%. 

The declines in power and manufacturing construction may be close to ending, partly as a result of the Tax Cuts and Jobs Act. Online newsletter Politico reported on Thursday, "Last year's tax overhaul is about to unlock a multibillion-dollar pot of money for electric and gas utilities—and it could help pay for a massive buildout of energy infrastructure. Thanks to the bill's massive reduction in corporate tax rates, much of that may now be able to go toward other investments, such as modernizing and strengthening the nation's pipelines and electric grid." Fiat Chrysler Automobiles announced on January 11 "it will invest more than $1 billion to modernize the Warren Truck Assembly Plant (Mich.) to [relocate production of the Ram truck] from Saltillo, Mexico," an action it said was "made possible in part by the passage of U.S. tax reform legislation." Reuters reported on Tuesday, "Nikola Motor Company unveiled plans on Tuesday for a $1 billion manufacturing hub for its hydrogen-fueled semi-trucks" in the Phoenix area. "Over the next five years, Pfizer plans to invest approximately $5.0 billion in capital projects in the U.S.," the drug maker reported on Tuesday. But not all announcements represent net increases. On Tuesday, appliance maker Electrolux Group announced it will be "modernizing and expanding the manufacturing operation in Springfield, Tenn. for approximately $250 million....This adds to a previously decided investment of approximately $250 million" in Anderson, S.C. but, as a result, "the company will cease production at its St. Cloud, Minn. facility." Harley-Davidson announced on Tuesday "the consolidation of its motorcycle assembly plant in Kansas City, Mo. into its plant in York, Pa." Readers are invited to submit examples (to simonsonk@agc.org) of how the tax law may affect their profitability or demand for construction


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