Category Archives: construction economy


Construction Indicators Show Economy Gaining Steam

Written by Associated Builders and Contractors.

Despite the loss of 1,000 jobs in March, the nation’s construction industry

Associated Builders and Contractors

unemployment rate edged down to 20 percent for the month, according to the April 1 employment report by the Labor Department. Year-over-year, construction employment is down by 36,000 jobs, or 0.6 percent. Today’s rate is lower from 21.8 percent in February and 24.9 percent posted in March 2010.
Nonresidential building construction now supports 658,100 jobs in the U.S. The sector added 2,600 for the month, but has lost 1,800 jobs, or 0.3 percent of job totals, on a year-over-year basis. The specialty trade contractor segment lost 6,700 jobs in March and has lost 41,000 jobs, or 1.2 percent, over the last twelve months. Heavy and civil engineering construction gained 2,400 jobs for the month and has added 25,100 jobs, or 3.1 percent, from March 2010.
In contrast, heavy and civil engineering construction gained 2,400 jobs for the month and has added 25,100 jobs, or 3.1 percent, over the past twelve months. The residential building construction sector added 600 jobs in March, but has lost 18,600 jobs, or 3.2 percent, compared to the same time last year.
Overall, the nation added 216,000 jobs in March, the largest monthly gain since March 2007. The private sector added 230,000 jobs for the month while the public sector shed 14,000 jobs. Year-over-year, the nation has added 1,300,000 jobs, or 1 percent. The national unemployment rate now stands at 8.8 percent.
Analysis“The employment estimates for March indicate that the nation’s economic recovery continues to gain steam,” said Associated Builders and Contractors Chief Economist Anirban Basu. “While high and rising gas prices are likely to slow the pace of momentum as we approach the summer months, 2011 is poised to be a solid year of progress for America’s economy.
“Unfortunately, the recovery in nonresidential construction has scarcely begun. Specialty trade contractors continue to hemorrhage jobs in large numbers, indicating that the capacity to supply construction services continues to exceed demand,” said Basu. “This had been predicted, at least to a certain extent. With publicly financed construction no longer expanding and with many privately financed activities not yet in recovery mode, the overall level of demand continues to be stagnant.
“However, there are leading indicators, including ABC’s own Construction Backlog Indicator, that suggest that the recovery of privately financed construction will begin sometime later this year,” Basu said. “Evidence the fact that heavy and civil engineering construction added 2,400 jobs in March, perhaps a reflection of improvement to come as projects now in various stages of planning begin to break ground in larger numbers later this year and in 2012.”

Source for this post was AmeriSurv.com.

Building schools provides boost to construction firms

By November 2009, construction employment in the state was off by 5,200 jobs when compared to a year earlier. A year later, construction remained in the doldrums.

But continued school building provided a welcome boost for many contractors.

In Natrona County, Groathouse Construction completed the CY Middle School last summer, which sent payroll and consumer-spending benefits rippling through the local economy.

John Griffith, Groathouse project manager, said the CY Middle School project involved 49 subcontractors, 24 of which were from Casper and 35 from the state generally. Of the final project cost of about $29 million, $21.5 million went to Casper-based firms and just under $25 million to Wyoming-based subcontractors. In all, 86 percent of the dollars spent on the project went to Wyoming subcontractors.

Casper-based companies did the mechanical, electrical and steel work — big parts of any such project. Wyoming firms also provided the polished concrete floors, the doors, windows, ceilings, and supplied specialty items like bathroom partitions.

Griffith said there were only a couple aspects of the project, like exterior sprayed insulation, that few Wyoming firms provide. He added that schools are not nearly as specialized as, for example, hospital projects.

On a Groathouse project, Griffith said it’s typical for 75 percent to 85 percent of the project dollars to be spent on Wyoming-based subcontractors.

“We’ve got a pretty extensive database of subcontractors from Wyoming that we market to do work for us in all corners of the state,” he said.

“Everybody always wants the best price, but what we also push is the best value,” Griffith added. “It doesn’t do anybody any good to get the best price if that subcontractor can’t perform the work.”

Griffith said the CY Middle School work force peaked at about 115 workers, but over time from start to finish, about 500 people were involved in the project.

In recent years, several new Natrona County schools in addition to CY have been built — Fort Caspar Academy, Cottonwood Elementary, Summit Elementary and Poison Spider School.

The future of school construction spending is a topic before this year’s Wyoming Legislature. In his State of the State address, Gov. Matt Mead rejected $62 million for school construction, which had been in former Gov. Dave Freudenthal’s budget.

“I remain skeptical that more dollars spent on buildings translates to a better education,” Mead said. He said that while he understands that the state is required by law to pay for school construction and maintenance, he wants a plan to demonstrate that the money is being spent for the maximum benefit of Wyoming.

Mead wants the Legislature to adopt a strong preference law for Wyoming contractors and to resolve other contract problems before he will approve the additional money for school construction.

The issue of out-of-state contractors doing capital construction projects like schools in Wyoming has been a sore spot with local contractors.

Josh Carnahan, president of Associated Builders and Contractors of Wyoming, said in-state preferences should not be afforded to anyone who simply establishes a local mailing address and claims to be a Wyoming business.

“I think that’s unfair to companies that employ people in the state, that are owned here in the state,” he said. “Many of my members don’t even leave the state to do work.”

Spending on Construction Stays Steady

A slow recovery period is projected for the nonresidential construction industry this year, and 2011 spending levels are not anticipated to be enough to show growth over 2010 figures.

While activity for institutional projects should hover near 2010 levels, there is likely to be a modest decline in commercial construction.

Overall nonresidential construction spending is expected to decrease by two percent in 2011, with 2012 seeing an increase of five percent in inflation adjusted terms.

These are highlights from the American Institute of Architects (AIA) semi-annual Consensus Construction Forecast, a survey of the nation’s leading construction forecasters.

“The key factors that have prevented an accelerated recovery include historically low lending rates for real estate projects, the lingering effects of general overbuilding and an unfavorable bond market that has hampered the ability for municipalities to get the requisite funding to build new schools and hospitals,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA.

“Conditions should improve later this year and gain momentum as we move into 2012, particularly for hotel, retail and office building projects.

Two areas that are of concern that may adversely affect the design and construction industry are the increasing federal budget deficit that will force private sector borrowing costs to increase, and the likelihood that energy costs will increase in the coming years – as crude oil prices have doubled from their recent low in 2009.”

With the first Reserve Bank Board meeting for 2011 scheduled for Tuesday, it’s opportune to do a stock take of our current economic fortunes.

First there is inflation. The December quarter figures confirm that inflationary pressures are well contained with prices up just 0.4%. In fact, the number of goods that are lower in price than a year ago is the highest for at least 20 years and probably the highest on record. And underlying inflation is at decade lows. Sure, the floods will lift food prices, but at the same time, retailers are engaged in massive discounting, keeping inflation in check.

Second, there are the gauges of activity across the economy. The Performance of Services index has been below a reading of 50 for the past 10 months – indicating that the sector is going backwards. The equivalent indexes for manufacturing and construction are showing similar trends – that is, the sectors are contracting.

Then there is the housing sector. New building approvals fell 4.2% in November, the seventh decline in eight months. Over this time period building approvals have fallen by 23% so it is clear that home building has started 2011 in poor shape.

And retailers also aren’t cheering at present. Retail spending rose 0.3% in November after a 0.8% slide in October. Annual growth of retail spending is close to the lowest levels seen in the past five years while chain store sales are growing at the slowest pace in 16 years. Retailers are actively discounting because consumers won’t spend and the news doesn’t look like getting better any time soon.

Then there is the job market. Up until recently, the job market had been the stand-out with employment rising strongly since June. But in December employment rose by just 2,300 positions while the Advantage job ad index fell by 2.3% in the month – the biggest fall since July 2009.

And then there are the floods, disrupting coal production and general business activity. Certainly the repair and refurbishment activity will lift economic growth in the future. But that is still down the track.

Overall it is clear that the economy has lost momentum, perhaps even contracting slightly in the December quarter. And at the same time, inflation is under control. So the Reserve Bank can sit tight on interest rates – there is no need to be lifting or cutting rates at present. We still believe that the economy will get over this flat patch, especially with our resources in big demand by Asian economies. But rates are going nowhere for now.

The week ahead

With schools returning after the long summer break, no doubt more investors will be back at their posts. And there will be a barrage of Australian and US economic data to welcome people back in the coming week.

In Australia, private sector credit or lending figures are released on Monday together with the RP Data-Rismark home price index. Credit probably rose modestly in December, up 0.2%, while another soft result on home prices is expected after the November rate hike.

On Tuesday the Reserve Bank Board meets while the Performance of Manufacturing index and the Bureau of Statistics house price series are released. The Reserve Bank won’t be touching rates, but investors will closely dissect the accompanying statement to gauge any subtle shifts in emphasis.

On Wednesday the Bureau of Statistics will release price data on a raft of food items. The Bureau plans to cease production of this series – a huge disappointment as this is the only publication that details the actual prices of items regularly purchased by Aussie consumers.

On Thursday, building approvals, international trade and the Performance of Services index will be released. We expect that building approvals improved modestly in December, lifting by 2%. And a trade surplus of $1.8 billion is tipped for the month.

And on Friday the Reserve Bank releases the Statement of Monetary Policy which should include estimates of the impact of the floods on the broader economy.

In the US, the week kicks off with data on personal income and spending on Monday. Economists expect firm readings with income up 0.4% and spending up 0.5%. Purchasing manager surveys for New York and Chicago are also released.

On Tuesday the ISM manufacturing gauge is released together with construction spending and car sales figures. Any reading for the ISM gauge above 50 means manufacturing is expanding and the current result stands at 57.0.

On Wednesday the Challenger job layoff series and ADP employment survey are released – two useful readings on the state of the job market. The ADP survey reported that 297,000 jobs were created in December, but that strength wasn’t picked up in the official non-farm payrolls report.

On Thursday, the ISM services index is released together with factory orders, productivity and the weekly jobless claims data (new claims for unemployment insurance).

And on Friday, the January non-farm payroll report is released – the official gauge on job market conditions in the US. While unemployment fell in the latest month, the concern was that this reflected people giving up the search for jobs, not more people finding work.

Sharemarket

The quarterly US profit-reporting or earnings season continues in the coming week, although the majority of bellwether companies have already issued earnings. Among companies reporting on Monday are Exxon Mobil and Anadarko Petroleum. On Tuesday earnings are expected from Lexmark and BP. Profit results on Wednesday include those from AOL, Time Warner, YUM! Brands and News Corp. On Thursday Kellogg, Mastercard and Merck release earnings. And on Friday Fortune Brands will be among a small group of companies to report their results.

So far in the US earnings season, around three-quarters of S&P 500 companies have beaten market expectations with their results – consistent with profit-reporting seasons over the past year or so.

Also in the coming week the Australian earnings season will have its customary slow start with a number of small and mid-sized companies to release half-yearly profit results.

Interest rates, currencies & commodities

In 2010 the Australian dollar was the second strongest currency in the globe, lifting by 12% against the greenback. So how is it faring in 2011? The first month of the year is almost over and the Aussie dollar is actually in the cellar, rather than on the top shelf. Of 120 currencies monitored, the Aussie dollar has eased by 2% against the US dollar, giving it a ranking of 113. Interestingly other high performers from last year are also under-performing with the Japanese yen, South African rand, Thai baht and Mongolian tugrik all lower against the greenback since the start of the year.

Financial markets continue to believe there is more chance of a rate cut in the next three months, than a rate hike. The one-month overnight indexed swap rate stands at 4.72% with the three-month rate at just under 4.75%.

For most of the period from the mid 1980s to 2002, freight costs went sideways. In fact, the Baltic Dry index broadly held between 1,000-1,500 points. Then came the ascent of China and the index soared to almost 11,800. More ships were needed, and more ships were supplied. The end result? Freight costs have slumped with the Baltic Dry index now at a 2-year low of 1,234. This is good news, especially with steel production at record highs.

Craig James is chief economist at CommSec.

Property Values Continue to Increase…But the Numbers Are Tricky

Today it was reported that the Standard & Poor’s Case-Shiller Index rose 0.3 percent in January from December, seasonally adjusted.  This marks the index’s eighth consecutive monthly increase.

But the news was not all good.  Seasonal adjustment of data lifts the numbers in the winter months, when the number of home sales is usually much less than the rest of the year. On an unadjusted basis, the index actually fell 0.4 percent in January from December.

Increases in the number of house sales, and housing prices, were a result of homeowners attempting to close before the government’s $8,000 tax credit was scheduled to end Nov. 30. Though Congress extended the credit until April 30, it apparently did so too late, and the number of homes sold in the period after November 30 decreased markedly.

When taken with other housing indexes, the Case-Shiller Index’s numbers are not as comforting.  The First American CoreLogic Home Price Index dropped 1.9 percent in January, and the Federal Housing Finance Agency’s index dropped 0.6 percent in January.

Twelve of the cities in the Case-Shiller index went up in January from December. Los Angeles was the biggest gainer, up 1.7 percent. Chicago was the biggest loser, dropping 0.8 percent.

Want to know the best and worst cities in which to have owned real estate over the century’s first decade?  They are as follows:

The three best cities: Los Angeles, New York and Washington. All are more than 70 percent above their level in January 2000.

The worst-performing: Detroit, which is 28 percent below its January 2000 mark.  Michigan, in general, was not great place to buy a home. 

For more information, check out U.S. Home Prices Inch Up, But Worries Remain, and Case-Shiller Index Shows House Prices Rising 0.3 Percent.

LienItNow.com

Current Economic Environment Leads to Shoddy Work and High Receivables?

When the economy collapsed over a year ago, the construction industry when down with it. As we’ve all heard over the past year, much of the boom was a result of a real estate bubble that was caused by loose bank lending practices. Companies and individuals were able to get lost cost mortgages, and where able to get financing to renovate existing buildings, or build new ones. 

Now that the days of easy money are gone, the contractors that are left in business are being forced to perform work at a cost much lower than 2 years ago.  But what is the effect of these new low prices?  Has it turned the construction industry into a sort of Walmart – the goods are cheaper, but the quality is low.

In an article posted on Linkedin by Jeffrey Stern entitled The Contractor’s Job is to Protect the Client, the argument is made that the low-bid environment places the contractor and client in an adversarial position, resulting in increased litigation, lower quality, excessive change orders and generally unhappy customers.

Mr. Stern’s argument may be correct, but haven’t customers of contractors complained about shoddy work for years? New construction has been something that people continue to look at with skepticism. So is construction worse now that contractors’ margins are tighter?  The argument could be made that the economic crisis has not affected the quality of construction projects because contractors are afraid of non-payment, and are doing everything possible to ensure payment in full.

What is clear is that mechanics’ lien filings are up accross the board.  Many of these lien filings are a result of banks freezing or slowing construction loan payments to commercial project owners.  When the bank freezes or slows funding, contractors have no choice but to protect their receivables and file construction liens. But that can be an expensive solution, especially when lawyers get involved.  To avoid those fees, there are lien filing services availabe, such as LienItNow.com

Since this is the first post on this blog, it might be a good idea to explain its purpose.  It is our hope to provide information on the current state of the construction industry, helpful links, news, and related discussions.  Since the blog is related to LienItNow.com, the other purpose will be to provide contractors, subcontractors, suppliers and others entitled to lien rights with information about their lien rights.  We hope the construction industry will find it to be helpful.

LienItNow.com provides lien filing services to the entire United States, and offers other services related to lien filing, such as pre-lien notices, stop notices, amendments to mechanics liens, extensions to mechanics liens, discharges of mechanics liens, pre-notices for bond claims, and bond claims.  LienItNow.com files these documents for the claimant, double checks to make sure the property upon which the lien is being filed is the correct property, and serves the documents on the appropriate parties.  All of this is done for a low, flat rate.