US & Washington Construction Cost Outlook Presentation to the - - PowerPoint PPT Presentation

US & Washington Construction Cost Outlook

Presentation to the Sound Transit Board (System Expansion Committee) Seattle February 14, 2019 Ken Simonson Chief Economist, AGC of America simonsonk@agc.org

Headline Forecast

• The US economy is still growing well:
• 304,000 jobs added in January, 2.8 million in past 12 months—the most since ‘15
• consumer, business confidence are generally high; recession probability is low
• but home & auto sales are slowing; trade & fiscal policy concerns continue
• Contractors remain busy and confident; construction employment at 11-year high

with growth in most states and project categories

• Three concerns:
• impact of trade policies on materials costs and demand for construction
• widening labor shortage, worsened by hostile immigration policy
• rising interest rates may cut demand for income-producing projects, new homes

Source: Author

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Summary

• Costs for many construction materials have risen sharply in the past two years
• Labor costs are accelerating as pool of experienced unemployed jobseekers dries up
• Contractors want to add workers in 2019 but expect difficulty finding them
• As a result, some contractors are increasing bid prices or completion times

Source: Author

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Prices for key inputs have risen sharply

(change in producer price indexes, Nov. 2017-2018 & Nov. 2016-2017)

Source: Bureau of Labor Statistics

3% 0% 13% 8% 42% 3% 9% 6% 20% 20% 0% 10% 20% 30% 40% 50%

Ready-mixed concrete Paving mixtures Aluminum mill shapes Steel mill products Diesel fuel

November 2017–November 2018 November 2016–November 2017

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• 24%
• 20%
• 16%
• 12%
• 8%
• 4%

0% 4% 8% 12% 2008 2010 2012 2014 2016 2018

12-month % change

Construction Employment Change from Year Ago

1/08–12/18 (seasonally adjusted)

Washington 4.4%

Source: BLS

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U.S. 4.1% 12/17–12/18:

Construction employment change by WA metro, 12/17–12/18

6 Over -10%

• 5.1% to -10%
• 0.1% to -5%

0.1% to 5% 5.1% to 10% Over 10%

Shading based on unrounded numbers

0% Source: BLS state and regional employment report

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5.0% 4.0%

0% 1% 2% 3% 4% 5% 6% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

12-mo % change in construction average hourly earnings Job openings rate in construction 12/18 Construction job openings rate has been growing as pay accelerates (Dec. data, 2009-18)

Construction workforce indicators (not seasonally adjusted)

Source: Bureau of Labor Statistics

7 382,000 219,000

50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Hires Openings 12/18 Construction openings: all-time high; hires steady (Dec. data, 2009-18)

US/WA Net % who expect dollar volume of projects to be higher

14%/38% Transportation (e.g., transit, rail, airport) 14%/11% Water/Sewer 17%/12% Public building 13%/0% Private Office 16%/12% Highway 12%/8% Manufacturing 16%/13% Hospital 11%/9% Higher Education 16%/6% K-12 school 10%/13% Power 15%/5% Federal (e.g., VA, GSA, USACE, NAVFAC) 5%/-6% Multifamily Residential 15%/12% Retail, Warehouse, Lodging

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AGC members’ expectations for 2019—US & WA

Source: AGC 2019 Outlook Survey, Jan. 2019

Rising materials and labor costs may portend higher bid prices

Sources: Highway contract prices: Federal Highway Administration, National Highway Construction Cost Index

• Const. pay and materials, services cost: Bureau of Labor Statistics, Current Employment Statistics, Producer Price Index

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• 3.0%

0.0% 3.0% 6.0% 9.0% 12.0% 15.0% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018

Cumulative change in highway bid prices and input costs, Dec. 2015–Sep. 2018 12-month % change, not seasonally adjusted

• Const. wages &

salaries Cost of construction materials & services Highway contract prices

AGC Outlook Survey: WA contractors expect to add workers but are having trouble finding them

Source: AGC 2019 Outlook Survey, Jan. 2019

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55% 75% 77%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Will be hard/harder to find workers in 2019 Having trouble filling positions Expect to add workers in 2019

AGC Outlook Survey: WA Firms with staffing challenges face higher costs and delays

Source: AGC 2019 Outlook Survey, Jan. 2019

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20% 27% 29% 16%

0% 5% 10% 15% 20% 25% 30%

We've put longer completion times into bids/contracts Projects have taken longer than we anticipated We've put higher prices into bids/contracts Costs have been higher than we anticipated

2017-2018 US summary and 2019 forecast

*Jan.-Nov. 2017 to Jan.-Nov. 2018

2017 actual 2018 actual 2019 forecast Total spending 4% 4.5%* 5-8% Goods & services inputs PPI 4.4% 3.8% 4-6% Wages & salaries (avg. hourly earnings) 3.1% 3.6% 3.5-4.5%

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AGC economic resources

(email simonsonk@agc.org)

• The Data DIGest: weekly 1-page email (subscribe at

http://store.agc.org)

• monthly press releases: spending; producer price indexes;

national, state, metro employment with rankings

• yearly employment & outlook surveys, state and metro

data, fact sheets: www.agc.org/learn/construction-data

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