May’s Nonresidential Construction Starts -2.0% M/M & -14% YTD

Nonresidential Construction Pales Beside Residential

ConstructConnect announced today that May 2021’s volume of construction starts, excluding residential work, was $32.5 billion (green shaded box, Table 8 below), a decline of -2.0% versus April 2021’s $33.2 billion (originally reported as $31.5 billion).

May 2021 nonresidential starts compared with May 2020 were -12.0%. In the latest month, there was no individual project valued at a billion dollars or more (see Top 10 Project Starts in the U.S. – May 2021). In May of last year, there were two such groundbreakings, a steel mill in Texas and a rapid transit project in Washington State, adding to $4.3 billion. View this information as an infographic.

Year-to-date nonresidential starts have been -14.1% versus January-May 2020. However, year-to-date Grand Total starts have been even with last year, at -0.4%.

The year-to-date results for the two other major type-of-structure categories making up ‘Grand Total’ have been residential at +21.4% and heavy engineering/civil, -3.8%.

Clearly, home building activity has been the mainstay of construction work lately, although engineering work has encountered only a minor fall-off. Nonresidential building activity is where a deep bottom is only gradually being filled back in.

It’s important to keep in mind that an extraordinary effect will distort year-over-year comparisons throughout 2021. In Q1 of last year, groundbreakings were ‘normal.’ They weren’t being negatively impacted by economy-wide shutdowns to combat coronavirus infections.

Therefore, percentage changes for early 2021 relative to early 2020 were skewed downwards by a relatively high base (denominator) in the mathematical calculation.

Beginning in April of this year, an opposite bias comes into play. The numbers from last year being used for comparison purposes suffered from COVID-19-related suppression.

The ‘Starts’ Vs Put-in-Place Capital Spending Relationship

‘Starts’ compile the total estimated dollar value and square footage of all projects on which ground is broken in any given month. They lead, by nine months to as much as two years, put-in-place (PIP) statistics which are analogous to work-in-progress payments as the building of structures proceeds to completion.

PIP numbers cover the ‘universe’ of construction, new plus all manner of renovation activity, with residential traditionally making up two-fifths (about 40%) of the total and nonresidential, three-fifths (i.e., the bigger portion, at around 60%). Presently, though, according to the Census Bureau’s April 2021 not-seasonally-adjusted (NSA) PIP numbers for the total United States, the year-to-date mix has shifted more towards residential work (48% of the total) and away from nonresidential (52%) than usual. The Census Bureau’s April 2021 NSA ytd PIP results are +5.8% for total; +21.8%, residential; and -5.6%, nonresidential (including nonres buildings and engineering).

PIP numbers, being more spread out, have smaller peak-over-trough percent-change amplitudes than the ‘starts’ series. As an additional valuable service for clients and powered by its extensive ‘starts’ database, ConstructConnect, in partnership with Oxford Economics, a world leader in econometric modeling, has developed put-in-place construction statistics by types of structure for U.S. states, cities, and counties, ‘actuals’ and forecasts. ConstructConnect’s PIP numbers are being released quarterly and are featured in a separate reporting system.

Second Month of Construction Job Losses

In May, while the total jobs count for the U.S. economy advanced by +559,000, the construction sector encountered employment shrinkage for the second month in a row. A jobs loss of -5,000 in April worsened to -20,000 in May. Almost all the declines in both months are traceable to nonresidential sub-contractors (see Graph 1). U.S. construction’s May not seasonally adjusted (NSA) unemployment rate was 6.7%, down from April’s 7.7%, and much better than May 2020’s 12.7%.

Year-over-year employment in construction is now +6.0%, which compares favorably with manufacturing, +5.4%, but doesn’t keep pace with the nation’s total jobs gain, +8.9% (Graph 3). The ‘total jobs’ surge has received a boost from the ‘leisure and hospitality’ sector, where staffing in May advanced by +41.7% y/y. The strong vaccination rollout, although still a distance away from achieving ‘blanket’ coverage, has reduced daily infection rates and allowed a fuller slate of bar and restaurant reopenings, plus a partial reclamation of pre-COVID-19 domestic travel patterns.

The latest year-over-year jobs count changes for some other corners of the economy with close ties to construction have been: building material suppliers, +6.3%; real estate activities, +5.1%; architectural and engineering services, +5.0%; cement and concrete product manufacturing, +2.3%; oil and gas extraction, +1.8%; and machinery and equipment rental and leasing, +1.2%.

Hospital/Clinic and Water/Sewage Starts Doing Best

The small -2.0% month-to-month (m/m) drop in total nonresidential starts in May was entirely due to weakness in commercial (-25.8%), as industrial recorded a good-sized gain (+58.0%) and engineering (+2.5%) and institutional (+2.4%) pulled ahead a bit. Industrial work had a nice contingent of large projects in May including an Amazon distribution facility in New Hampshire and two manufacturing plants in Texas.

The -12.0% decline in May 2021 total nonresidential starts relative to May 2020 (y/y) resulted from poor showings in three of the major type-of-structure subcategories,  industrial, -43.0%; institutional, -17.5%; and commercial, -12.7%, with engineering also off, but not by an excessive amount, -4.8%.

As for the year-to-date pullback (-14.1%) in total nonresidential starts, the major culprits were commercial (-28.0%), industrial (-17.5%), and institutional (-15.8%), with engineering playing a tinier role (-3.8%).

More than one-third (34.2%) of total nonresidential starts year to date have originated in only two type-of-structure sub-categories, roads/highways (with an 18.1% share) and educational facilities (with a 16.1% share). The three metrics for school starts in May were +5.4% m/m, but -15.8% y/y and -18.5% ytd. For street starts, the three key measurements were somewhat sunnier, -1.3% ytd but +8.8% m/m and +12.9% y/y.

Three medical subcategories, ‘hospitals/clinics,’ ‘nursing/assisted living,’ and ‘miscellaneous medical,’ combined to account for 7.7% of total nonresidential starts year to date in May. The results for this health care grouping in the latest month were -28.2% m/m, -42.7% y/y, and -4.6% ytd. (‘Hospital/clinic’ starts on their own, though, have been +34.9% ytd.)

‘Water/sewage’ starts have surprised for their strength within engineering so far this year. The subcategory’s percentage changes have all been positive: +42.3% m/m; +64.7% y/y; and +11.9% ytd.

Within the commercial designation, starts on hotels/motels and private office buildings remain depressed. While the former in May was +7.2% y/y, it was -32.2% m/m and -58.7% ytd. The latter in the latest month was uniformly down: -45.9% m/m; -41.8% y/y; and -47.6% ytd.

Warehouse starts have not been repeating their exuberance of last year. In May, they were -44.2% m/m; -33.0% y/y; and -16.6% ytd.

Retail/shopping starts have, at the least, slowed their rate of descent. While in May they were -4.8% ytd, they were commendably +1.2% m/m and +25.7% y/y.

Table 2: Construction Starts in Some Additional Type of Structure Sub-Categories

Data Source and Table: ConstructConnect.

JOLTS Insight into Openings Vs Hiring Mismatch

The monthly Job Openings and Labor Turnover Survey (JOLTS) conducted by the Bureau of Labor Statistics provides additional insight into construction employment. The fact there are plentiful job opportunities in the sector is borne out by the curves in Graph 5. ‘Openings’ as both a level and a rate have been climbing steeply in 2021, and while they have not quite broken past previous record positions, they are undoubtedly high relative to their history.

But ‘hiring’ (Graph 6) can only be described as mediocre to lackluster. Currently, this is a situation (i.e., plenty of offerings that are remaining unfilled) many industries are facing. Several reasons are being cited for this dilemma. (1) Government income support over the past year is enabling out-of-work individuals to be pickier about where they will sign on next. (2) The pandemic has led many people to reassess their career choices and to decide they’d rather try a different path. (3) Also, many older workers have seen the pandemic as a sign they should bring forward their retirements. As a result, often there’s a mismatch between the kinds of jobs being offered and the skill sets available to properly undertake the work.

Steep Slides in Some of the Trend Lines are Bottoming Out

Many of the 12-month moving average trend lines (Nonresidential Construction Starts Trend Graphs – May 2021) have spent the past year or two, or in some cases longer, descending noticeably. After the last couple of months, though, there are indications that, in several instances, low points may have been reached. This appears to be the case for ‘retail,’ ‘hospitals/clinics,’ ‘miscellaneous civil,’ and possibly ‘bridges’ as well.

To their credit, the ‘roads/highways’ and ‘water/sewage’ trend lines have managed to stay flat and somewhat elevated since before the health crisis. For ‘private offices’ and ‘schools/colleges,’ however, ends to their woes are not yet apparent.

Construction Worker Y/Y Wage Gains in +4%-to-+5% Range

Tables B-3 and B-8 of the monthly Employment Situation report record average hourly and average weekly wages for industry sectors. B-3 is for all employees (i.e., including bosses) on nonfarm payrolls. B-8 is for ‘production and nonsupervisory personnel’ only (i.e., it excludes bosses). For ‘all jobs’ and construction, there are eight relevant percentage changes to consider.

From Graphs 7 and 8, ‘all jobs’ and construction worker y/y compensation rates have recently flipped places compared with their relative positions in 2020. The latter is now advancing more rapidly than the former. ‘All jobs’ wages in the Spring of last year soared when numerous part-time and ‘gig’ workers were frozen out of the earnings calculation by lockdown-related job losses. Consequently, 2020’s exaggerated pay hikes for ‘all jobs’ are now contributing a heightened base (or denominator) to present y/y earnings calculations, restraining the percentage change.

From Table B-3 (including bosses), ‘all-jobs’ earnings y/y in May 2021 were +2.0% hourly and +2.6% weekly. Construction workers, as a subset of ‘all jobs’, saw sprightlier compensation hikes of +4.1% hourly and +4.6% weekly. From Table B-8 (excluding supervisors), ‘all jobs’ pay increases in the latest month were +2.4% hourly and +3.0% weekly. For construction workers, income gains of +4.4% hourly and +4.9% weekly, put a livelier spring in their step.

Table 3: 2021 YTD Ranking of Top 20 States by $ Volume of Nonresidential Construction Starts – ConstructConnect

Figures are comprised of nonres building & engineering (residential is omitted).

Data Source and Table: ConstructConnect.

Table 4: 2021 YTD Ranking of Top 20 States by $ Volume of Nonresidential Building Construction Starts – ConstructConnect

Data Source and Table: ConstructConnect.

Table 5: 2021 YTD Ranking of Top 20 States by $ Volume of Heavy/Engineering Civil Construction Starts – ConstructConnect

Data Source and Table: ConstructConnect.

Contractors Unable to Pass Along Spiking Expenses

April 2021’s y/y results for three structures-related BLS Producer Price Index (PPI) series were as follows: ‘construction materials special index,’ +23.8% (a further astonishing climb on the heels of March’s +16.6%); ‘inputs to new construction index, excluding capital investment, labor, and imports,’ +18.8% (going a big step beyond March’s +13.5%); and ‘final demand construction,’ +2.1% (up from the previous month’s +1.5%, but mild in the context). Material input costs have been skyrocketing. Contractors, though, in a fiercely competitive marketplace, have not been able to pass along their spiking expenses.

Eagle-eyed readers will note that the above paragraph is unchanged from last month. Usually, at this point in the narrative, mention will be made of the latest building material cost changes as revealed by Producer Price Index (PPI) results. But the scheduling of the release of PPI figures can sometimes present a problem. May’s PPI numbers will come out just after this Industry Snapshot goes to press. Therefore, please have a look online at ConstructConnect’s corporate website in a day or two to see the latest PPI results showcased in tables and graphs.

The value of construction starts each month is derived from ConstructConnect’s database of all active construction projects in the U.S. Missing project values are estimated with the help of RSMeans’ building cost models. ConstructConnect’s nonresidential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are super-large, has a history of being more volatile than many other leading indicators for the economy.

May 2021’s ‘Grand Total’ Starts -0.4% YTD

From Table 10 on page 10 of this report, ConstructConnect’s total residential starts in May were -14.8% m/m, but +22.3% y/y and +21.4% ytd. The latest month’s multi-unit starts were -27.1% m/m, -11.8% y/y, and -2.5% ytd. Single-family starts in the latest month were -10.5% m/m, but +37.4% y/y and +31.6% ytd. Including home building with all nonresidential categories, Grand Total starts in May 2021 were -8.1% m/m, +0.5% y/y, and -0.4% ytd.

ConstructConnect adopts a research-assigned ‘start’ date. In concept, a ‘start’ is equivalent to ground being broken for a project to proceed. If work is abandoned or re-bid, the ‘start’ date is revised to reflect the new information.

Expansion Index Monitors Construction Prospects

The economy may be in recovery mode, but nonresidential work is usually a lagging player. Companies are hesitant to undertake capital spending until their personnel needs are rapidly expanding and their office square footage or plant footprints are straining capacity. Also, it helps if profits are abundant. (Today’s greater tendency to work from home has made office occupancy much more difficult to assess.)

Each month, ConstructConnect publishes information on upcoming construction projects in our Expansion Index.

The Expansion Index, for hundreds of cities in the U.S. and Canada, calculates the ratio, based on dollar volume, of projects in the planning stage, at present, divided by the comparable figure a year ago. The ratio moves above 1.0 when there is currently a larger dollar volume of construction ‘prospects’ than there was last year at the same time. The ratio sinks below 1.0 when the opposite is the case. The results are set out in interactive maps for both countries.

Click here to download the Construction Industry Snapshot Package – May 2021 PDF.

Click here for the Top 10 Project Starts in the U.S. – May 2021.

TABLE 6: VALUE OF UNITED STATES NONRESIDENTIAL CONSTRUCTION STARTS
May 2021 – CONSTRUCTCONNECT

*Includes transportation terminals and sports arenas.

Source: ConstructConnect Research Group and ConstructConnect.
Table: ConstructConnect.

TABLE 7: VALUE OF UNITED STATES CONSTRUCTION STARTS
CONSTRUCTCONNECT INSIGHT VERSION – MAY 2021
Arranged to match the alphabetical category drop-down menus in INSIGHT

Table 2 conforms to the type-of-structure ordering adopted by many firms and organizations in the industry. Specifically, it breaks nonresidential building into ICI work (i.e., industrial, commercial, and institutional), since each has its own set of economic and demographic drivers. Table 3 presents an alternative, perhaps more user-friendly and intuitive type-of-structure ordering that matches how the data appears in ConstructConnect Insight.

Source: ConstructConnect.
Table: ConstructConnect.

TABLE 8: VALUE OF UNITED STATES NATIONAL CONSTRUCTION STARTS – MAY 2021 – CONSTRUCTCONNECT
Billions of current $s, not seasonally adjusted (NSA)

Data Source and Table: ConstructConnect.

TABLE 9: U.S. YEAR-TO-DATE REGIONAL STARTS,
NONRESIDENTIAL CONSTRUCTION* — CONSTRUCTCONNECT

*Figures above are comprised of nonres building and engineering (i.e., residential is omitted).

Data Source and Table: ConstructConnect.