CMD recently announced that January’s $22.5 billion of construction starts, excluding residential activity, was 10.1 percent lower than in December. The decline all but disappears, however, when allowance is made for seasonality. CMD’s long-term average December-to-January moderation, due to obstructionist winter weather, has been 8.5 percent. (Despite making the foregoing allowance, the figures referred to throughout this report are not seasonally adjusted or NSA.)
This year’s kick-off volume was the highest for a first month since January 2010’s $22.8 billion. Compared with a year ago in January 2014, the latest month’s non-residential starts were +10.8 percent.
The starts figures are in ‘current’ dollars, meaning they are not adjusted for inflation. ‘Non-residential building’ plus ‘engineering/civil’ work accounts for a considerably larger share of total construction than residential activity. The former’s combined proportion of total put-in-place construction (NSA) in the Census Bureau’s December report was 65 percent versus the latter’s 35 percent.
CMD’s construction starts are leading indicators for the Census Bureau’s capital investment or put-in-place series. Also, the reporting period for starts (i.e., January 2015) is one month ahead of the reporting period for the investment series (i.e., December 2014.)
U.S. ‘real’ (i.e., inflation-adjusted) gross domestic product (GDP) growth in the final quarter of last year eased to 2.6 percent after outsized gains of 5.0 percent in Q3 and 4.6 percent in Q2. Consumers and many corporations, with roots outside the energy sector, will benefit from the dramatic drop in the world price of oil from $107 USD per barrel little more than half a year ago to $45 at present.
According to the Bureau of Labor Statistics, the total number of construction jobs in the nation shot up by 39,000 in January on top of an impressive 44,000 increase in December. At a combined 83,000, this has been one of the fastest back-to-back jumps since the recession.
January’s year-over-year employment increase of 308,000 yields a percentage rise of 5.1 percent, more than double the nation’s total jobs gain of 2.3 percent.
Among the major sub-categories of construction starts, heavy engineering (+8.7 percent) was the only one with a respect- able percentage increase month to month in January. The others all declined, although the degree to which institutional work (-12.1 percent) fell back was less than for industrial (-18.2 percent) and commercial (-30.2 percent).
The dollar volume in the industrial category of starts is usually much smaller than for the other three categories. It is also prone to a great deal of volatility depending on the timing of specific large project initiations.
When January of this year is compared with the same month of last year, engineering/civil work (+47.6 percent) was again the frontrunner, with a percentage change that was ahead by almost half.
Institutional starts (+0.1 percent) in the first month of this year were almost exactly the same as in last year’s lead-off period. Among the three major sub-categories, commercial starts (-10.4 percent) were the most disappointing.
For more information, visit www.cmdgroup.com/construction-forecast.
