Infrastructure Proposal Could Have Profound Impact on Construction Starts

By Richard Branch, Chief Economist, Dodge Data & Analytics

On Wednesday, March 31, President Biden unveiled his nearly $2 trillion infrastructure and job growth initiative called the American Jobs Act. It is a program that, if enacted in whole, would have a profound impact on the economy, and the construction sector in particular. The plan is expansive and its direct construction-related portion accounts for roughly half of the total.

 

The proposal sets aside $621 billion for transportation initiatives including funding for roads, electric vehicle incentives and charging stations, public transit, airports, and ports. For buildings and utilities, another $689 billion is dedicated to water infrastructure, broadband internet, electric grid improvements, public schools, and veterans’ hospitals. Additional funds are also made available for workforce training, increased wages/benefits for home-care workers, and new spending on research and development.

While comprehensive, the plan’s future course remains precarious. The main difficulty lies with its passage through Congress where it may prove difficult to pass another large spending bill on the heels of the $1.9 trillion COVID-19 relief bill (the American Rescue Act) signed into law in March. To pay for the elements of the American Jobs Act, the plan calls for raising corporate taxes — a large hurdle that could raise the ire of Republicans and moderate Democrats. Pushing through the legislation with Democrats alone brings its own complications (either using the budget reconciliation process that requires the bill is fully paid for, or eliminating the filibuster), and would still require unanimity among Senate Democrats.

At the same time, a great deal of bipartisan and bicameral support does exist for added spending on infrastructure projects. In 2015, for example, President Obama and the Republican-controlled Congress agreed on the $305 billion FAST Act, and just before the 2020 presidential election, bipartisan committees in the House and Senate had agreed on its replacement.

To build this large effort into the forecast, and yet account for the looming uncertainty of what will eventually be passed, Dodge has included a much more limited and targeted infrastructure package into the forecast set to be released at the end of April — roughly $550 billion for core infrastructure construction, or half the size of the current core infrastructure proposal. This infrastructure spending is assumed to be in addition to a $300 billion replacement for the FAST Act, which has already been built into the Dodge construction starts forecast.

Even this lower dollar figure would have an immediate and positive impact on the forecast for construction starts. Under this assumption, our proprietary econometric model suggests that public works starts would increase by nearly 50% from 2021 through the end of our forecast window in 2025, up from a 17% growth rate in the previous version of the forecast released in January. This growth is equally shared across the public works sectors. Nonresidential buildings would also see some support through additional funds for education, healthcare, and federal buildings, but the impact is more muted.

We will be hosting a webinar on Tuesday April 27th at 2pm EST to discuss in more detail the impact of a infrastructure package on the construction starts forecast. Registration information will be forthcoming.

 

Employment Growth Picks Up in February

By Kim Kennedy, Director of Forecasting Dodge Data & Analytics

BEDFORD, MA -- MARCH 5, 2021 -- New cases of COVID-19 began to decline in February after the winter surge and the economy responded positively by adding a healthy 379,000 jobs during the month and allowing the unemployment rate to slip to 6.2%. The easing of COVID-19 restrictions encouraged job growth in sectors hit hardest by the pandemic. Leisure and hospitality, for example, added 355,000 jobs in February with most of those jobs (286,000) coming from restaurants and bars. Retail jobs climbed by a smaller 41,000 and healthcare service employment, in high demand with the pandemic, increased by almost 46,000. Temporary jobs, which are typically a leading indicator for overall job growth, also rose by 57,000 over the month.

 

 

Construction employment, by contrast, fell by 61,000 in February. Specialty trade contractors lost 42,000 jobs and heavy/civil engineering jobs were down by 21,000, but the stalwart residential sector still added 5,000 jobs over the month.

Private sector jobs increased by 465,000 in February, but government jobs continued to feel the squeeze from the loss of tax revenue and high cost of responding to the pandemic. Government jobs declined by 86,000 in February with most of those losses coming from state (39,000) and local (44,000) governments.

Looking ahead, Dodge believes that employment will continue to grow, particularly as the economy picks up steam in the second half of the year. The president is promising plentiful COVID-19 vaccines for Americans by the end of May, which should usher in the beginnings of a true recovery.

 

 

Infrastructure Provides Opportunity, But Not Without Challenges

By Richard Branch, Chief Economist, Dodge Data & Analytics

BEDFORD, MA – FEBRUARY 24, 2021 – In 2020, the COVID-19 pandemic raged on, pushing the U.S. economy into recession and constraining opportunity. Construction starts fell 9% to $778 billion but would have been down a total of 17% if single family construction had not provided a significant boost.

The COVID-19 vaccine rollout will help the overall economic recovery, but the construction sector’s recovery will be limited by reduced demand for nonresidential buildings, budgetary issues at the state and local level, and limited public works projects.

Hope for a better recovery, however, lies with the potential for an influx of federal stimulus funds directed to infrastructure. President Biden’s Build Back Better plan is said to include “a $2 trillion accelerated investment, with a plan to deploy those resources over his first term.” The last major spending program was in the wake of the Great Recession in 2009. Though the American Recovery Reinvestment Act of 2009 (ARRA) helped direct $100-$150 billion towards infrastructure, it did not provide consistent and significant upward momentum in public works starts.

If, however, President Biden’s (or similar Congressional) infrastructure package is aimed at investment across a broad range of construction types, it could significantly alter Dodge’s forecast trajectory. Below is a brief look at its potential impact by project type.

Potential High Impact

Public Works: Public works consist largely of roads, bridges, water supply, other water resources, and sewers/waste removal. In constant dollar terms (i.e., adjusted for inflation), public works construction peaked in 2002 at $68 billion. In the years since, starts have averaged just $59 billion after adjusting for inflation. This is arguably the “low hanging fruit” in any potential infrastructure plan. There is broad consensus across party lines for action beyond a renewal of the five-year surface transportation plan (FAST Act), which is set to expire on September 30, 2021.

Transit/High-Speed Rail: Throughout the COVID-19 pandemic, single family construction has been growing sharply in less dense (and more affordable) suburban and rural areas further away from downtown cores. While this pace is expected to cool somewhat as the pandemic eases, it will exacerbate congestion on roads and transit systems. Legislation for roads and transit would, therefore, likely include additional funds for high-speed rail projects such as the Dallas-Houston line, Los Angeles-Las Vegas line, and potential upgrades to Amtrak’s Acela line between Boston and New York. Land acquisition will be a significant challenge to overcome for these kinds of projects.

Renovations: Addressing climate change was a hallmark of Build Back Better, so improving energy efficiency for existing structures could be a significant element of the final plan. In 2020, nonresidential building renovations totaled $61 billion, accounting for 25% of all nonresidential building starts. The likely vehicle for funding these projects is tax credits, which could reduce the overall cost.

Potential Medium Impact

Renewables: Over the last decade, utility-scale renewable projects (mainly wind and solar) have accounted for almost 60% of all electric generation starts. In December 2020, the Investment Tax Credit and Production Tax Credit were extended through 2025 as part of the omnibus appropriations package, providing further tailwinds for this sector. Additional funds will likely be allocated in the infrastructure plan to build renewable resources. The current limiting factor to stronger growth in this sector is the lack of transmission capacity to carry the power to large markets.

Potential Small Impact

Data Centers: Access to broadband internet has been a key restraint to growth in many areas of the country and could be a boon in any potential infrastructure package. In turn, this could have a two-tailed effect on construction. First, from the actual buildout of the wiring and other assets, but also increased data center construction. It seems unlikely that data center developers would receive direct funds to build, but tax credits could potentially be made available. Even without support, data center construction starts have totaled nearly $30 billion since 2017 and are likely to remain robust.

Healthcare: The pandemic laid bare the lack of surge capacity within the nation’s hospitals. Over the last decade, healthcare construction starts have been heavily skewed towards outpatient clinics, while investment in hospitals has trended lower. Although the issue was not directly addressed during the campaign as part of an infrastructure package, it seems logical that insufficient in-patient bed counts could be addressed.

Summary

A program of this size is not without challenges. The current political environment presents the most significant impediment. Slim majorities in the House and Senate will require finesse in passing any large dollar spending program, especially since it comes on the heels of a big-ticket COVID-19 relief package.

The ultimate impact on the construction sector will also be determined by how spending programs are designed:

  • Will funds be allocated over multiple years? Longer duration spending programs will mute the impact on annual construction starts.
  • What will be the ultimate funding formula at the project level? Will the federal government spend the bulk of the funds, or will funds be allocated to state and local entities for disbursement?
  • Will state and local governments need to provide matching funds? The pandemic and economic fallout have had a significant impact on budgets, so matching requirements may lead to lower overall investment.

Much remains to be determined, but the possibilities for an infrastructure package on construction are significant. Once a plan has been submitted to Congress, Dodge Data & Analytics will be able to provide more guidance on the potential impact on our proprietary construction starts forecast.

This topic, and much more, will be discussed in our upcoming webinar The Rocky Road to Recovery: Dodge Construction 2021 Outlook – First Quarter Update on March 4th at 2 PM EST.

For more information and to register: https://register.gotowebinar.com/register/8230860895708523280?source=Reps

 

Labor Market Posts Weak Gain at Start of 2021

By Richard Branch, Chief Economist, Dodge Data & Analytics

The Bureau of Labor Statistics reported today that the U.S. economy added just 49,000 jobs in the month of January following the December decline of 227,000. In January, the construction sector lost 3,000 jobs — the first time since April that the sector has shed positions. Residential building and heavy and civil engineering jobs rose in January, while nonresidential and specialty trade positions fell.

 
 
 
The unsteady labor market recovery mirrors other high frequency data for the construction sector. In a separate release issued today, the Dodge Momentum Index, a leading indicator for nonresidential building, posted an increase that lifted the Index above its pre-pandemic level. However, the dollar value of public building planning projects (schools, healthcare, etc.) in this month’s Momentum Index were at lows not seen since the Momentum Index began in 2002. Commercial sector projects in planning (offices, warehouses, hotels, retail) are recovering, although that recovery is largely due to the warehouse sector. E-commerce distributors like Amazon Inc. are planning numerous warehouse projects to satisfy the growing demand for online shopping. Without the warehouse sector, this leading indicator for nonresidential construction would be well below the level seen prior to the COVID-19 pandemic. 
 
 
Construction starts have also suffered in the wake of weak economic and labor market growth. Nearly every sector and metropolitan area in the country posted significant declines in construction in 2020 as reported in our recent Beyond the Data newsletter. Many projects in planning continue to languish, and there is little hope for impetus to alter that trend during the early months of 2021. Hope will come, however, once the COVID-19 vaccine is more widely distributed among the nation’s population.
 

2020 Ends with Job Losses

By Richard Branch, Chief Economist Dodge Data & Analytics

NEW JERSEY — JANUARY 11, 2021 —  U.S. economy lost 140,000 jobs in December as the economy downshifted in the face of rising COVID-19 cases across the country. The construction sector was one of the few bright spots during the month as it gained 51,000 jobs. Still, construction has added back less than 80% of the jobs lost in March and April.

 

 

Other data from the construction sector suggests construction has not escaped the distress from COVID-19. The Dodge Momentum Index, a leading indicator on nonresidential building activity, finished 2020 4.8% below where it was at the end of 2019 – a gap that would have been much wider if not for robust activity in the warehouse market. Outside of building related to e-commerce, planning for both commercial and institutional building has struggled to gain traction in the midst of weak economic growth.

Construction starts (ground breakings) also suffered greatly during the year. Building starts posted significant declines in 2020 with only single family housing and warehouse activity showing strength. Nonbuilding (infrastructure) starts also languished as state and local revenues declined.

The December jobs report is a poignant reminder that the U.S. economy was in precarious shape as 2020 ended due to the new wave of COVID-19 cases spreading rapidly across the country. For the first time in nearly a year, however, we can say that the immediate future looks brighter. The $900 billion stimulus plan approved by Congress at the end of 2020 will provide meaningful support for individuals and businesses. Further deployment of vaccines will also lead to a more rapid recovery as the year progresses. While it will be a long road back to full recovery, the construction sector is poised for a return to growth in 2021.

 

 

Job Growth Slows in November

Richard Branch, Chief Economist, Dodge Data & Analytics

NEW JERSEY – DECEMBER 4, 2020 – According to the Bureau of Labor Statistics, the U.S. economy added 245,000 jobs in November – a considerable step back from the revised 610,000 jobs added in October. Still, the unemployment rate dipped to 6.7%. Private sector employment improved by 344,000, while the public sector shed 99,000 positions. Within the public sector, state and local governments cut 13,000 positions, while federal employment was down 86,000 reflecting the loss of temporary workers that had been hired for the 2020 Census.

 

Within the private sector, transportation and warehousing added 145,000 jobs, while retail jobs fell 34,700 reflecting less seasonal hiring in brick and mortar retail and increased online shopping. Manufacturing jobs improved by 27,000, while professional and business services employment improved by 60,000.

Employment growth in the construction sector also lost steam in November, adding 27,000 positions, down from the 72,000 added in the previous month. Gains were seen in residential and nonresidential building, heavy and civil engineering as well as in residential specialty trade contractors. Nonresidential specialty trade contractors cut 1,200 positions. The construction sector has now added back nearly 80% of the jobs lost during March and April, while total nonfarm employment has added back just under 60% of the jobs lost.

Economic growth has slowed noticeably over the past several months and the labor market is beginning to stagnate as a result. There should nevertheless be some solace that employment growth was as strong as it was in November, given the considerable headwinds facing the economy. The next wave of the virus is accelerating and the prospects for additional federal stimulus are still very uncertain, so employment growth is expected to slow further in the months to come. Construction employment should remain somewhat resilient, however, due to the booming housing market. Looking into 2021, the hope for rapid deployment of a vaccine sets the table for a stronger economic recovery taking hold by the midpoint of the year.

 

 

Job Growth Slows in November

Richard Branch, Chief Economist, Dodge Data & Analytics

NEW JERSEY – DECEMBER 4, 2020 – According to the Bureau of Labor Statistics, the U.S. economy added 245,000 jobs in November – a considerable step back from the revised 610,000 jobs added in October. Still, the unemployment rate dipped to 6.7%. Private sector employment improved by 344,000, while the public sector shed 99,000 positions. Within the public sector, state and local governments cut 13,000 positions, while federal employment was down 86,000 reflecting the loss of temporary workers that had been hired for the 2020 Census.

 

 

Within the private sector, transportation and warehousing added 145,000 jobs, while retail jobs fell 34,700 reflecting less seasonal hiring in brick and mortar retail and increased online shopping. Manufacturing jobs improved by 27,000, while professional and business services employment improved by 60,000.

Employment growth in the construction sector also lost steam in November, adding 27,000 positions, down from the 72,000 added in the previous month. Gains were seen in residential and nonresidential building, heavy and civil engineering as well as in residential specialty trade contractors. Nonresidential specialty trade contractors cut 1,200 positions. The construction sector has now added back nearly 80% of the jobs lost during March and April, while total nonfarm employment has added back just under 60% of the jobs lost.

Economic growth has slowed noticeably over the past several months and the labor market is beginning to stagnate as a result. There should nevertheless be some solace that employment growth was as strong as it was in November, given the considerable headwinds facing the economy. The next wave of the virus is accelerating and the prospects for additional federal stimulus are still very uncertain, so employment growth is expected to slow further in the months to come. Construction employment should remain somewhat resilient, however, due to the booming housing market. Looking into 2021, the hope for rapid deployment of a vaccine sets the table for a stronger economic recovery taking hold by the midpoint of the year.

 

 

Job Growth Slows in November

Richard Branch, Chief Economist Dodge Data & Analytics

NEW JERSEY – DECEMBER 4, 2020 – According to the Bureau of Labor Statistics, the U.S. economy added 245,000 jobs in November – a considerable step back from the revised 610,000 jobs added in October. Still, the unemployment rate dipped to 6.7%. Private sector employment improved by 344,000, while the public sector shed 99,000 positions. Within the public sector, state and local governments cut 13,000 positions, while federal employment was down 86,000 reflecting the loss of temporary workers that had been hired for the 2020 Census.

 

 

Within the private sector, transportation and warehousing added 145,000 jobs, while retail jobs fell 34,700 reflecting less seasonal hiring in brick and mortar retail and increased online shopping. Manufacturing jobs improved by 27,000, while professional and business services employment improved by 60,000.

Employment growth in the construction sector also lost steam in November, adding 27,000 positions, down from the 72,000 added in the previous month. Gains were seen in residential and nonresidential building, heavy and civil engineering as well as in residential specialty trade contractors. Nonresidential specialty trade contractors cut 1,200 positions. The construction sector has now added back nearly 80% of the jobs lost during March and April, while total nonfarm employment has added back just under 60% of the jobs lost.

Economic growth has slowed noticeably over the past several months and the labor market is beginning to stagnate as a result. There should nevertheless be some solace that employment growth was as strong as it was in November, given the considerable headwinds facing the economy. The next wave of the virus is accelerating and the prospects for additional federal stimulus are still very uncertain, so employment growth is expected to slow further in the months to come. Construction employment should remain somewhat resilient, however, due to the booming housing market. Looking into 2021, the hope for rapid deployment of a vaccine sets the table for a stronger economic recovery taking hold by the midpoint of the year.

 

Job Growth Makes Modest Progress in October

By Kim Kennedy, Director of Forecasting, Dodge Data & Analytics

BEDFORD, MA – November 9, 2020 – With the threat of COVID-19 still looming, the U.S. economy made modest progress in October as employers added 638,000 jobs to payrolls. The economy has now recovered a little more than half of the 22 million jobs lost as the economy shut down in March and April to prevent the spread of COVID-19. But gains have slowed since the early months of reopening: nonfarm employment grew at its strongest pace of 4.8 million jobs in June, but then began to slow with just 1.8 million jobs added in July and 1.5 million in August followed by a slower 672,000 in September and 638,000 in October. October’s job growth, however, may have been a little stronger if not for 147,000 temporary Census workers whose jobs ended in October. The private sector added 906,000 jobs in October, while governments shed 268,000.

 

 

Some of the strongest jobs gains in October came from the retail and leisure/hospitality sectors that were hardest hit by the downturn. In October, retailers added back 104,000 jobs and leisure/hospitality added back 271,000. These sectors, however, face the greatest perils as the winter months approach given the likely resurgence of the virus and softening economic growth as further federal stimulus efforts fail to materialize.
Construction employment grew by 84,000 in October, led by gains in specialty trade contractors (up 45,300). Heavy/civil engineering jobs grew by 18,800, while nonresidential jobs were up 13,400 and residential by a smaller 6,000.


October’s unemployment rate also fell by a full percentage point to 6.9%. More recently, Wall Street rallied last week with the strongest stock market gains since April. Most importantly, with the presidential election now decided, that uncertainty is now behind us and should lead to a stronger outlook for the months ahead. Here’s to a glass that continues to look half full.

 

Growth Does Not Mean Strength — Third Quarter Gross Domestic Product

By Richard Branch, Chief Economist

As widely expected, U.S. Gross Domestic Product shot higher in the third quarter, increasing at an annualized 33.1% — the largest quarterly increase in GDP since 1947 when quarterly figures were first tracked. The increase follows a sharp 31.4% contraction in economic output during the second quarter and a 5.0% drop in the first quarter.

Third quarter gains were widespread. Consumer spending was robust, with large increases for both goods and services as pandemic restrictions were lifted. Business investment also moved significantly higher driven by spending on equipment, while investment in nonresidential structures posted a notable decline — its third consecutive quarterly drop. Residential investment also moved higher in the quarter. On the downside, government spending contracted, driven by weaker spending at both the federal and state and local levels.

The third quarter bounce back reflects the initial round of businesses reopening and rehiring as pandemic restrictions were lifted over the summer. It does not, however, mean that the economy has returned to pre-pandemic levels of activity and regained its full health. With today’s report, the economy has recovered only two-thirds of the output lost in the first half of the year. Moving forward, the economy still faces significant hurdles including the next wave of COVID-19, election uncertainty, and diminished hope in the near-term for additional federal stimulus. Expect economic growth to move sideways in the fourth quarter and into early next year.


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