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Monthly Archives: May 2019

Stats Show This Blog’s Growth

The goal has always been to share information. It takes readers to make that happen. Well, here’s what you, my readers, have done for this blog.

2016 was a start-up year. The blog had only 7,000 visitors for the year that produced 14,000 views. It wasn’t until the blog became established that more visitors began to view more articles. The number of visitors and article views grew exponentially after that.

Total visitors in 2017 averaged about 2000/month, but in 2018 grew from 2000/month at the beginning of the year to 5000/month by year end. So far in 2019 though mid-May this blog has had over 30,000 visitors.

In 2019 so far, this blog gets on average about 1500 visitors/week that view about 3000 articles/week.

Total views of all articles in 2017 averaged 5000/mo, in 2018 – 8000/mo and in 2019 ytd – 12000/mo. By the end of June 2019 articles on this blog will have received 250,000 views.

By far the most popular articles are those on the subject of construction inflation and the economic forecast. In fact, the inflation articles, simply through the number of hits from google searches, have garnered a top page link from google search for construction inflation.

In January 2019, more than 8,000 visitors generated 17,000 views. The 2019 Economic Forecast Summary had more than 3,000 views and the Inflation Index Tables more than 4,000 views. This blog now gets more visitors and more views per month than I got per year when when I worked for and my reports were published and distributed by a major national construction firm. I believe that success is supported by quality content and web presence.

Inflation Tracking and Forecast 2017 – 50 views a day,  2019 – 150/day

Starts/Backlog/Spending Forecast 2017 – 10 views a day,  2019 – 50/day

 

Thanks to all of you who make writing worth the effort. Please keep reading. edz

 

Construction PPI Excludes Imports and Tariffs

When assessing or tracking the pricing affect of tariffs on construction materials, you need to understand that the Producer Price Index (PPI) does not include imports (imports are not produced in the US) or tariffs. See items 4 and 24 in the FAQ provided by the Bureau of Labor Statistics. Construction PPI changes reflect pricing decisions domestic producers make on domestic products in reaction to tariffs on imported products. Tariffs have big impact on domestic prices.

BLS explanation of method and definitions

The price change we see in the PPI for construction materials reflects the domestic material prices of ALL other domestically produced materials used in the industry. While tariffs may affect only 10% of products used in the industry the PPI shows us the domestic producers reaction applied to the other 90%.

For example: Steel tariffs of +25% applied only on imported steel, affected only 30% (the imported share) of steel used in US. However the PPI shows us that all other domestically produced steel in the US and used in construction increased in price between 12% and 22% in 2018. Prices of domestic steel have receded somewhat, now ranging from +7% to +13%. But the point is that tariffs caused a price increase also in domestic steel.

AGC Tables of Construction PPI

The cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased 18% in 2018 after the steel tariffs were imposed. That is domestic producers pricing response in reaction to tariffs. Tariffs impacted pricing decisions on all domestically produced products, not just the imported products. The increase has since receded but is still up 10%. Consumers pay the price.

Construction Volume vs Jobs 2017-2018

5-3-19

For the two years 2017-2018, the  Total All Construction posted Revenue +9.8%,   Volume after adjusting for inflation +0.3%, and total Jobs +7.6%.

Jobs vs Volume 2011- Dec2018 7-9-19 fixed15

Breaking out these numbers by sector,

Nonresidential Buildings —  Revenue +5.9%   Volume -3.1%   Jobs +8.2%

Non-building Civil —  Revenue +3.8%   Volume -3.6%  Jobs +10.0%

Residential Buildings —  Revenue +17.1%  Volume +5.6%  Jobs +8.2%

Similar to a pattern that occurred in the pre-recession spending boom, jobs growth is more closely matched to revenue growth than it is to real volume growth. Overall, for the last two years, construction jobs growth far outpaces construction volume growth.

In the nonresidential sectors, while revenue was positive, after spending is adjusted for inflation, real volume was down 3% to 4%. Yet jobs increased 8% to 10%.  

Residential spending (revenue) was up 17%, but after inflation real volume was up only 5.6%. Residential jobs increased 8%. If we look at residential since 2011 we see persistent growth in volume greater than jobs. But all residential jobs are not captured.

Jobs vs Volume 2011- Dec2018 Residential 5-3-19

When we look at Nonresidential Buildings we see jobs growth far exceeds volume growth. However, there are some jobs related to residential work that are captured in the nonresidential jobs number, any work on high-rise residential buildings performed by contractors whose company is generally classified as nonresidential, particularly structural, and it is impossible to break out those jobs.

Jobs vs Volume 2011- Dec2018 Nonres Bldgs 5-3-19

It is difficult to square the consistent jobs growth in excess of volume growth with the long ongoing narrative of jobs shortages. I suppose it could be argued that it is a “skilled” jobs shortage, a lack of workers with the needed experience. But we would have to look back to the period 2000-2004 to find a time when jobs growth was balanced with volume growth. There are several other articles on this blog documenting the variance back to 2000. 

Here’s a link to a twitter thread on the May release of the April Jobs report showing the differences for the last 12 months.

 

A brief explanation added to answer the question of the difference between Spending (or Revenue) and Volume.

If your company revenues are increasing at a rate of 7% per year at a time when construction inflation is 5%, your business volume is increasing only 2% per year. If you hire support staff to support 7% growth in revenues, you would be grossly over-staffed. Inflation adds nothing to business volume. If you do not factor inflation into your growth projections, you are not forecasting growth properly. Spending is revenue. Volume is spending (revenue) minus inflation.

If a contractor is building houses that last year cost $250,000 to build a 2500sf house, but this year it cost $275,000 to build the same house on the lot next door, the volume did not change. Both sets of dollars represent the cost of the same house, but the most recent house cost 10% more due to inflation. It does not take any more workers to build the house this year than it did last year. Inflation changed the dollars of revenue that changed hands, but inflation added nothing to business volume.

Volume is measuring the amount of work completed, not the cost of the work completed. This blog post compares the number of jobs added to the amount of work added. Adjusting for inflation removes the variable of cost.

Brief Notes on Mar2019 Construction Spending Report

5-1-19

Census released March spending today and from my point of view the numbers are showing a surprise downward shift. Nonresidential Buildings and Non-building Infrastructure both showed upward movement as expected but Residential spending posted the eight decline in nine months.

Construction Spending for March posted at $1.282 trillion, 1.5% below (my) expectations. Nonresidential increased BUT Residential is down 2% from Feb. Jan was revised down 4.6% and Feb revised down 5.6%.

Residential spending is now 8% below March 2018. The decline is about half in single family and half in renovations. Multi-family spending is up 11% year/year.

The only monthly gain in residential spending since July 2018 is in Dec, but in the nine months Jul to Mar spending is down 10%. Q1 2019 spending has dropped back to a level of Q1 2017. This is pushing my 2019 residential spending forecast into a decline, 1st decline since 2010.

I’ve posted reasons why I expect upward revisions to residential spending, but I question if revisions can turn around the current 10% decline from last July. It now looks like residential construction spending will NOT post any gains in 2019. That’s more serious than it first appears, since spending needs to increase at least 4% to 5% just to counter inflation. In other words, if residential spending in 2019 posts a 2% decline, real residential volume after inflation would decline by 6% or 7%.

In real volume, after adjusting for inflation, residential construction spending, as of March, is down 12.5% year over year. That hasn’t happened since 2009. Perhaps revisions will recover half that decline, but not all. Contrary to the decline in real volume, in the last year residential construction jobs are UP 3.5%.

Manufacturing currently appears stronger than it is expected to finish the year. Up 6% year-to-date and up 10% from last March, we could see those gains fall off over the next 6 months. Backlog is still very strong, but the schedule of cash flows from old jobs will lead to several months of moderate declines. Initial forecast was for 2% growth in 2019. Current expectations are that manufacturing will finish the year up between 2% to 4%. 2020 will be an extremely strong growth year.

Office spending, similar to manufacturing, could post several months of moderate declines. In fact, my forecast shows office spending declines in 6 out of the next 7 months and finishes the year at the same monthly rate of spending as we are at now. Office is up 8.4% ytd but I expect the year to finish up 4% or less. Initial forecast was up 6% for 2019. New starts in 2018 were up 11% but most of that spending will benefit 2020 when I expect to see growth of 6%.

Commercial spending is currently down 4.8% ytd and 7% lower than last March. It will move slightly lower before it improves, finishing the year down only 1% to 2%. 2020 may not get more than a 1% gain.

Educational spending will finish 2019 much stronger than current spending but the year will only make slight gains over 2018. Current spending is up 5.5% ytd over 2018 but that will taper off.  However, the strong activity in the 2nd half of 2019 will lead to substantial growth in 2020.

 

More notes will be added in the coming days as I review all other markets in the spending report.

 

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