Simonson Says: Mixed Signals for Construction Spending and Hiring

The latest readings on construction employment and spending have been positive overall. But there are still plenty of reasons to be cautious about the near-term outlook. Construction employment in May inched up from April on a seasonally adjusted basis, but climbed by a relatively robust 189,000 or 3.4 percent from a year ago, the Bureau of Labor Statistics (BLS) reported on June 7.  A BLS report today showed that construction firms hired slightly more workers in April 2013 than in April 2012, but fewer than in March, while job openings rose from a year ago but remained unchanged from a month ago—a thoroughly mixed set of signals. Looking ahead one quarter, ManpowerGroup reported today that 26 percent of the construction employers it surveyed expect to increase employment by the end of September compared with the end of June, versus only 8 percent that expect to decrease employment. Both the percentage expecting increases and the net (18 percent) are among the most optimistic of 13 sectors the company reported, and the net is a considerable jump from the net reading of 10 percent three months ago. Yet employment gains remain spotty. An AGC analysis of state level data on May 17 found that construction employment rose between April 2012 and April 2013 in 29 states, but decreased in 21 plus the District of Columbia. Even states that have generally added jobs in the past year, such as Texas and North Dakota, remain below their previous peak employment levels. Contractors in these states have had difficulty filling some openings, but in most of the country, there appear to be enough workers for the projects at hand. Construction spending presents a similarly mixed picture. Year-to-date spending in January through April 2013 was 4.5 percent higher than in the same months of 2012, the Census Bureau reported on June 1. But this moderate overall gain disguises a three-way split. Private residential construction spending leaped 18 percent, a slight acceleration from the 16 percent growth rate recorded in 2012 over 2011. In contrast, private nonresidential spending, which raced ahead 18 percent in 2012, slowed to a crawl—a rise of 1.5 percent—in the first four months of this year. And public construction continued to drift lower, falling 4.8 percent year-to-date following a 2.7 percent drop in 2012. The latest “Beige Book” – a roundup of informal surveys of businesses in each of the 12 Federal Reserve Bank districts – found “commercial construction activity expanded at a modest to moderate pace in most districts,” while residential construction “increased at a moderate to strong pace in all districts.”  Other favorable indicators include the rapid increase in single- and multi-family housing starts and building permits from a year ago and a 2.1 percent rise in architectural and engineering services employment in the past 12 months. But other indicators suggest nonresidential construction, at least, will remain subdued. Reed Construction Data and McGraw Hill Construction both reported a downturn in the value of nonresidential starts in April from a year ago. Revenues for both architectural and engineering services firms slipped in the first quarter from a year earlier, the Census Bureau reported on June 6. Sorting through all messages, it appears likely that overall construction spending will rise between 5 and 10 percent in 2013 as a whole from 2012. Residential construction should remain nearly as strong as in the first four months and as in 2012. Private nonresidential spending will probably accelerate from its recent sluggish pace but not match the full-year rate of 2012. Public construction will slip moderately all year long. Employment will grow moderately but in only half to two-thirds of the states.