Wednesday, June 8, 2011

Tiny overall gains, mixed sectoral results mark latest construction jobs, spending data

In May, seasonally adjusted “nonfarm payroll employment changed little (+54,000), following increases that averaged 220,000 in the prior 3 months,” the Bureau of Labor Statistics (BLS) reported on Friday. “The unemployment rate was essentially unchanged, at 9.1%” (8.7%, not seasonally adjusted), compared with 9.0% in April. “Construction employment was essentially unchanged in May. Employment in the industry has shown little movement on net since early 2010, after having fallen sharply during the 2007-09 period.” To be precise, construction employment in May totaled 5,529,000, up by 2,000 from April and exactly equal to the May 2010 total but down by 2.2 million (29%) from the peak in April 2006. Results varied widely by subsector. Heavy and civil engineering construction firms added 3,100 workers in May and 34,400 (4.2%) over 12 months; nonresidential specialty trade contractors, -9,900 for the month, +900 (0.0%) over 12 months; residential specialty trades, +14,100 and -6,500 (-0.4%); nonresidential building, 600 and -7,200 (-1.1%); and residential building, -5,900 and -21,400 (-3.7%). Construction unemployment in May totaled 1,367,000 (16.3%), not seasonally adjusted, down from 1,755,000 (20.1%) in May 2010 but a far higher unemployment rate than in any other industry. Since the number employed in construction was unchanged over that period, the drop may reflect individuals finding work in other industries or withdrawing from the labor force (because they retired, returned to school, gave up looking or other reasons). Architectural and engineering services employment, a harbinger of demand for construction, rose 3,000 in May and 31,600 (1.7%) year-over-year.

Construction spending in April totaled $765 billion at a seasonally adjusted annual rate, the Census Bureau reported on Wednesday, 0.4% higher than in March but 9.3% lower than in April 2010. However, Census reduced its March estimate to $762 billion, 0.1% above the February total, from an initial estimate of $769 billion. Public construction shrank for the seventh month in a row to a four-year low, down 1.9% from March and 7.5% from April 2010. There were declines in the top four public categories, which account for three-fourths of public construction (listed in descending order of current size): highway and street, -1.6% for the month and -5.6% year-over-year; educational, -2.7% and -8.6%; transportation facilities, -3.8% and -15%; and sewage and waste disposal, -2.5% and -12%. Private nonresidential spending edged up 0.5% for the month but was down 8.5% year-over-year, with very mixed results among the top segments. The largest segment, power, increased 3.2% over both intervals; commercial (retail, warehouse, farm) fell 1.3% and 9.2%; manufacturing sank 1.0% and 27%; and health care was up 0.8% for the month but down 1.5% year-over-year. Private residential construction climbed 1.7% from March but fell 10% from April 2010. The largest segment, improvements to existing single- and multi-family housing, jumped $8 billion (7.6%) for the month, although the initial estimate for March was reduced by $10 billion. New single-family spending fell 1.0% and 13%; new multifamily, -0.1% and -7.6%.

One piece of multifamily construction that may do well is for-profit student housing. “With colleges cutting capital budgets, little new supply was added during the downturn,” the Wall Street Journal reported on Wednesday. “Meanwhile,…more than three million high schoolers are expected to graduate each year until the 2018-19 academic year, compared with just under 2.5 million in 1993-94, according to the Department of Education….The newfound popularity of campus housing is driving up the prices of developments for purchasers and sparking development…As values have risen, developers have dusted off plans and lenders have become more willing to provide financing, although not on as generous terms as during the boom years. Campus Crest, for example, has six housing complexes under construction and is planning to break ground on six to eight more.”

“The rebound of U.S. hotels and resorts is drawing in buyers who stepped back from the industry prior to the recession,” the Journal reported on Wednesday. “Among those now marshalling billions of dollars to acquire hotels is KSL Capital Partners LLC, [which] is expected to disclose Wednesday that it has finished raising a $2.1 billion fund targeting distressed resorts…Others include [Westbrook Partners, which has] seized control of eight high-end hotels,…Starwood Capital Group and Blackstone Group.” Investors in distressed hotels often invest in renovation. “In April, [KSL] bought the historic, 409-room Royal Palm hotel near Miami for $130 million, converted it to the James brand and plans to complete a $42.6 million renovation by next year.” Census data show spending on private lodging construction rose in February and March but fell 4.4% in April to a level 32% below the April 2010 mark.

Out of 77 metro areas, 2010 pay (wages, salaries, commissions and production bonuses) for construction and extraction occupations was highest in the New York-Newark-Bridgeport metropolitan area (including portions of New York, New Jersey, Connecticut and Pennsylvania), BLS reported on May 25. The “pay relative” there was 29% higher than the average for all 77 areas. Workers in San Jose-San Francisco-Oakland received 28% more than the national average. At the other end of the scale, workers in Brownsville-Harlingen, Texas, received 68% of the national average, followed by Birmingham-Hoover, Alabama, and Cincinnati-Middletown-Wilmington (including portions of Ohio, Kentucky and Indiana) at 80%.

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