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Catalyst Construction Brief
September 2017


Latest Economic Data

U.S. Census Bureau
Construction Spending
JUL 2017 vs. JUL 2016
Seasonally Adjusted Annual Rate

All Construction Spending:   +1.8%
Public Construction:   -5.6% 
Private Construction:  +4.1%
Residential Construction:  +11.2%
Non-Residential Construction:  -4.3%

Quick Analysis: Year-over-year growth in the overall U.S. construction market leveled off over the summer months on a seasonally adjusted basis. Looking at the total non-residential U.S. market, overall spending is actually down 4.3% versus the prior year. All growth continues to be driven by the private residential market. Of that growth in the residential market, single family home building is driving most of the growth.

July Sector Highlights:

Year-Over-Year Spending Growth
Private Single-Family: +10.4%
Commercial: +7.8%
Private Multi-Family: +2.6%

Year-Over-Year Spending Declines
Office: -0.2%
Health Care: -0.6%
Lodging: -0.6%
Educational: -4.5%
Transportation: -4.5%
Highway & Street: -4.6%
Power: -8.9%
Water Supply: -11.0 %
Sewage & Waste Disposal: -13.2%
Manufacturing: -15.6%

ENR Construction Cost Index
SEPT 2017 vs. SEPT 2016

Total Construction Costs:  +3.7%
Building Cost Index:  +3.3%  
Material Cost Index:  +0.7%
Skilled Labor Costs:  +2.2%
Common Labor Costs:  +3.6% 

Quick Analysis:  Inflation in labor costs continue to be the primary driver of  the increasing Total Construction Cost Index. With a tight employment market, this trend is not expected to change in the ensuing months unless the amount of construction spending declines.

U.S. Bureau of Labor Statistics
AUG 2017

Construction Unemployment:  4.7%

Quick Analysis: Industry unemployment for the month of August came in at 4.7%. This is the lowest industry unemployment rate for the month of August that we can find on record in the recent past (BLS data dates back to 2000). The next lowest unemployment rate for the month of August dating back to 2000 was 5.1% (August 2016 and August 2000).

AIA Architectural Billings Index (ABI)
AUG 2017

Architectural Billings Index (ABI):  53.7
Commercial/Industrial ABI:  57.6
Institutional ABI:  50.1
Residential: 53.8
New Project Inquiry Index (NPII):  62.5

Quick Analysis:  Index value > 50 represents  that architects have reported more activity for that particular metric than the prior month. These metrics are leading indicators as the ABI reflects projects in design that will enter the construction phase in 9 to 12 months and the NPII reflects new project demand from owners to potentially enter the design phase. 

While non-residential construction spending is down year-to-date versus the prior year based on the most recent data released, these metrics from the AIA appear to show that billings on non-residential projects in the design phase are up notably. This should result in more non-residential work hitting the market in the months to come.

ABC Backlog Indicator
1st Quarter 2017

National Avg. Backlog: 9.0  months

On our website's  Construction Economics Hub you can find great detail on average reported backlogs by:
  • Company Size
  • Contractor Type
  • Geography

Quick Analysis: T he ABC's Backlog Indicator report for the first quarter of 2017 shows that backlogs increased roughly 8% versus the fourth quarter of 2016.  The largest backlog growth was reported in the West Region and for companies in the $30-$50 Million annual revenue category. Greater detail can be found on our Economics Hub.

2nd quarter 2017 data expected to be released next month.

Economic Data Sources
Management Topics
Tax Reform:
Key Details Released

According to the U.S. Treasury, construction companies have the highest effective tax rate out of any industry across the country. In late September the Republican leadership released details of the tax reform initiative they are seeking to pass. An important component of that plan rests in how S-Corporations will be taxed for business income that passes through to a company owner's personal tax return. The current proposed framework would result in many construction company owners seeing a reduction in federal income taxes.

Read ENR Article

Change Orders: 
A Growing Concern For Architects
 

In a recent survey of architectural firms, the AIA found that 37% of architects are reporting an increase in change orders. 64% of architects feel that change orders are becoming "a somewhat serious issue."  The three sectors where architects are seeing the most change orders are K-12 school building, healthcare, and multifamily.

 
See AIA Survey Results
Business Development:
Reduce Your Project Acquisition Cost
competition_in_business.jpg

FMI consistently publishes an array of insightful articles. Earlier this month they released an article to help contractors sharpen their strategy in pursuing private work. With a more defined business development strategy, your firm can narrow in on expending resources on only the projects where you have a higher likelihood to win the work.
 


Your Bond Program:
Specialization Brings Better Solutions


If your firm depends on bonded work to maximize your business prospects and thereby your overall profitability, it's vital that you're getting the most from your bonding program. With the amount of work available in today's market, if you have the labor and personnel resources to take on additional work or larger projects, your bonding program should not be holding you back.
 
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