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Construction Financial Management Association Posts Updated Construction Indicators

Construction Financial Management Association (CFMA) has posted updated construction financial indicators for activity through March 2013. CFMA tracks the big five construction indicators from sources such as McGraw Hill, FMI Management and Consulting, American Institute of Architects (AIA) and Associated Builders and Contractors (ABC). A summary of the updated industry indicators is as follows:

CFMA Confindex - Increase of 15 points to 129 - A number of macroeconomic indicators suggest that despite US Economic growth, construction growth is firming.

Architectural Billing index - Increase of 12 point to 64.8 - With increasing demand for design services the ABI continues to strengthen.

FMI Construction Outlook Report - Holding steady at 8% growth for 2013 - Although the strength of individual markets is shifting, the forecast for total construction put-in-place for 2013 continues to show an increase of 8% over 2012 levels.

McGraw-Hill Construction Industry Confidence index - 64% in Fourth Quarter of 2012 - For the first time since 2008, signs suggest the the market is gradually recovering.

ABC Backlog indicator - Increase of 3.5% since November 2012 - ABC continues to report strengthening in its backlog indicator report.

To learn more about these reports, please visit www.cfma.org and search under Industry News and Advocacy or contact the construction professionals of McKonly and Asbury, LLP. 

 

 

FMI Releases Q1-2013 Construction Outlook Report

FMI, the largest provider of management consulting and investment banking services* to the engineering and construction industry released today its Q1-2013 Construction Outlook. Although the strength of individual markets is shifting, the forecast for total construction-put-in-place for 2013 continues to show an increase of 8% over 2012 levels. The $918,897 million estimate is a solid improvement, but FMI does not expect to return to the days of annual construction above the trillion-dollar mark until 2015.

The star of the show is residential buildings with a 23% rise in single-family buildings. While much of business sector is still in wait-and-see mode, some industries are breaking the mold and planning for growth. Commercial, lodging and office construction are starting to pick up.

The rich shale regions of the country are seeing a lot of construction activity. With oil and gas exploration booming, these regions are in need of housing, as well as the construction of roads, rail and pipelines to move the product from the fields to refining and distribution sites.

In addition, the potential for greater energy independence and lower energy prices is helping to make the U.S. more competitive in the global market and enticing more manufacturing to relocate in the U.S.

Residential Construction — Single-family housing put in place grew 19% in 2012, and FMI expects another 23% growth to reach $161 billion by the end of 2013. Multifamily construction improved a whopping 47% in 2012, with FMI looking for another 31% in 2013.

Nonresidential Construction Trends and Forecasts by Sector:

Lodging — After three years of steep declines, the market for lodging construction came back a strong 25% in 2012 and FMI expects another 10% growth in con­struction put in place for 2013.

Office — Office construction is finally showing a solid but slow turnaround with 5% growth in 2012 and another 5% increase expected in 2013.

Commercial — Commercial construction is the third largest nonresidential construction market behind education construction and manufacturing construction. That is why it is good to see that it continues into its third year of good growth, moving up 8% in 2012 and looking for another 7% to reach $50.3 billion in 2013.

Health care — Health care construction was moderate in 2012, growing only 3%, but FMI expects it to pick up in 2013 to 8% to $44.2 billion construction put in place for the year.

Manufacturing — Manufacturing construction increased 17% in 2012. It will continue with another 6% increase for 2013 through 2014.

Power-related — Construction for the power market grew 9% in 2012 and will continue to grow between 8% and 9% through 2017.

Construction Spending and Growth Continues to Rise

The PNC Financial Group recently reported that construction spending rose 1.2 percent in February, according to the Census Bureau, erasing some of January’s 2.1 percent decline (unrevised). Growth in December was revised down sharply, from 1.1 percent to 0.1 percent. Construction spending has increased in ten of the past eleven months, and in February was up 7.9 percent from one year earlier.

Spending rose in the three major categories from January to February. Private residential construction spending was up 2.2 percent, while private non-residential spending was up 0.4 percent. Public construction spending rose 0.9 percent in February. Private residential construction spending is leading the economy, and was up 20.1 percent in February from one year earlier as the homebuilding recovery continues. Private non-residential spending was up 6.1 percent year-over-year, while public spending was down 1.5 percent.

Residential building has been running ahead of overall construction over the past year. Many areas of the country have worked off the excess supplies of homes that developed during the housing boom. With prices down substantially from a few years ago, an improving labor market, very low mortgage rates, and gradually easing lending standards, residential construction activity has steadily improved over the past two years.

Conditions in the rest of the construction industry are more mixed (see Chart 1). There has been more modest growth in non-residential private construction recently. Office-using employment has been increasing for three years, but is still down by almost 600,000 from its peak in the summer of 2007, limiting the need for new office space. The drop in consumer spending during the recession and the increasing importance of internet-based retailing has weighed on the recovery in construction of retail space. And spending cuts at all levels of government have hit public construction, with spending down 16 percent from its peak four years ago.

Construction employment has increased by more than 280,000 since industry payrolls bottomed out in early 2011, but is still down by almost 2 million from its peak in 2006. The labor market recovery will remain disappointing until there is stronger growth in construction employment. The industry should continue to improve throughout 2013 and into 2014. Residential construction will continue to lead the industry this year. Excess supply continues to diminish, and housing starts are still running well below long-run demand given demographics. Non-residential construction will also continue to improve, but at a slower pace given the surfeit of commercial space in many markets. Private construction will remain a drag in 2013 given tight budgets and especially federal spending cuts from the sequester.

Housing Starts And Permits Up In February As Homebuilding Recovery Continues

Housing starts rose 0.8 percent to 917,000 at a seasonally-adjusted annualized rate in February, up from 910,000 in January (revised up from 890,000). Single-family starts rose to 618,000 from 615,000 (revised up from 613,000). Multifamily starts, covering apartments and condominiums, rose to 299,000 from 295,000 in January (revised up from 277,000). Housing starts increased in the Midwest and Northeast in February, but fell in the South and West. On a year-ago basis starts were up 28 percent in February, This includes a 63 percent increase in the West, with gains of 56 percent in the Northeast, 33 percent in the Midwest, and 10 percent in the South.

Housing permits also rose in February to 946,000 at a seasonally-adjusted annualized rate, up from 904,000 in January (revised down from 925,000), an increase of 4.6 percent. This was the most permits since June 2008. Single-family permits rose to 600,000 from 584,000 (unrevised), while multifamily permits rose to 346,000 from 320,000 (revised down from 341,000). Permits were up 34 percent year-over-year in February.

The National Association of Home Builders’ housing market index fell from 46 in February to 44 in March. After increasing steadily since late 2011, the index has declined for two straight months. The index fell in the Northeast, South and West in March, but rose in the Midwest. Although the overall index fell in March, two of the three subcomponents rose: expected sales over the next six months and traffic of potential buyers. However, there was a big four point drop in the present single-family sales component.

The homebuilding recovery continues. After falling by about 75 percent from their peak in 2006 to their trough in 2009, starts and permits have gradually moved higher, although they are still more than 50 percent below their levels at the height of the housing boom. Demand for housing has picked up as the labor market has improved and price declines and extremely low mortgage rates have made housing highly affordable. A gradual loosening of mortgage credit is also boosting demand. Excess supplies of single-family homes have dwindled with stronger demand, leading to gains in construction. On the apartment side the shift away from homeownership has led to stronger demand and higher rents, leading to a recovery in multifamily building.

These trends will continue in 2013 as the Federal Reserve works to keep interest rates very low and the job market further recovers. Even with its recent decline, the NAHB index points to further near-term growth in single-family construction (see Chart). PNC is forecasting a 23 percent increase in housing starts this year, following a 28 percent gain in 2012, including a 16 percent rise in single-family starts in 2013. The improvement in homebuilding will add to economic and job growth this year. However, starts will not return to the unsustainable levels of the previous decade, as homebuilders, lenders, regulators and policymakers have all learned their lessons. In fact, one concern now is a lack of capacity, with prices of building materials moving higher as demand has picked up and some homebuilders reporting difficulty in hiring construction workers These factors were noted in the press release for the NAHB housing market index. The NAHB also cited tight credit and appraisals as factors weighing on new home sales.

U.S. Construction Spending Fell 2.1% in January

Spending on U.S. construction projects fell in January by the largest amount in 18 months as home construction stalled and spending on government projects fell to the lowest level in more than six years.

The dip was viewed as a temporary setback with construction expected to keep moving higher this year.

Construction spending fell 2.1 percent in January compared with December, when spending had risen 1.1 percent. It was the biggest one-month decline since July 2011, the Commerce Department said Friday.

Residential construction, which has been leading the rebound in building, stalled in January with no gain in activity following a 1.7 percent rise in December.

Non-residential building dropped 5.1 percent while public construction was down 1 percent, pushing activity in the government sector to the lowest point since November 2006.

For all of last year, construction spending totaled $855.4 billion, an increase of 9.9 percent from 2011. It was the first annual gain after five straight years of decline. But construction still well below healthy levels.

Construction activity in 2012 is 26.7 percent below the all-time high of $1.17 trillion set in 2007 at the peak of the housing boom.

The housing market began recovering last year after a deep, six-year slump. Steady hiring and nearly record-low mortgage rates have encouraged more Americans to buy homes. More people are also moving out on their own after living with friends and relatives in the recession. That's driving a big gain in apartment construction and also pushing up rents.

Sales of previously occupied homes ticked up in January after rising to their highest level in five years in 2012. And new home sales jumped 16 percent last month from December to the highest level since July 2008 while home prices rose by the most in more than six years in the 12 months ending in December.

Rising home prices encourage more people to buy before prices rise further.

Builders, meanwhile, started work on the most new homes in 4 1/2 years in December. Last year was the best year for residential construction since 2008, just after the recession started.

Strong Surge for Architecture Billings Index

As the prognosis for the design and construction industry continues to improve, the Architecture Billings Index (ABI) is reflecting its strongest growth since November 2007.  As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending.  The American Institute of Architects (AIA) reported the January ABI score was 54.2, up sharply from a mark of 51.2* in December.  This score reflects a strong increase in demand for design services (any score above 50 indicates an increase in billings).  The new projects inquiry index was 63.2, much higher than the reading of 57.9 the previous month.

* Every January the AIA research department updates the seasonal factors used to calculate the ABI, resulting in a revision of recent ABI values.

“We have been pointing in this direction for the last several months, but this is the strongest indication that there will be an upturn in construction activity in the coming months,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA.  “But as we continue to hear about overall improving economic conditions and that there are more inquiries for new design projects in the marketplace, a continued reservation by lending institutions to supply financing for construction projects is preventing a more widespread recovery in the industry.”

Key January ABI highlights:

• Regional averages: Midwest (54.4), West (53.4), South (51.7),  Northeast (50.3)

• Sector index breakdown: mixed practice (54.9), multi-family residential (54.5), commercial / industrial (52.0), institutional (50.2)

• Project inquiries index: 63.2

To Learn more about the Architectural Billing Index and this report, please visit www.aia.org or contact the construction professionals of McKonly and Asbury, LLP.

AGC Projects "Tentative Recovery" In 2013

Six years of recession in the U.S. has cut a $1.2 trillion-a-year construction industry into one that is worth about $800 billion a year. It also chopped more than 2 million jobs from the industry, according to data from the Associated General Contractors of America. However, a survey by AGC and co-sponsored by Computer Guidance leads AGC to look at 2013 as a potential turning point with tentative signs of recovery.

Which building sectors will grow? Which will shrink?

In general, a majority of the 1,300 AGC member firms surveyed see construction spending in 2013 to be about the same as it was in 2012. Relatively speaking, this isn’t so bad, since AGC’s chief economist, Ken Simonson, said, “Construction spending in [the] first 11 months of 2012 was up about 9% over 2011.”

But there is also some optimism. About a third of the firms surveyed report that they expect to see increased spending in health care, higher education and power construction this year.

Unfortunately, there are also about a third who see K-12 construction spending as well as private sector spending — lodging, retail, offices and manufacturing — declining. And nearly 40% see decreased spending on public building.

However, perspectives vary depending on where in the country the firms are.

Where the work is

John Nunan, president of Unger Construction in Sacramento, Calif., said, “In the San Francisco Bay Area, you’ll see as many tower cranes and as much construction activity as there has ever been there.” He noted that much of that work has been driven by Silicon Valley, where firms such as Google and Apple are building new campuses. On the other hand, Nunan said, the Sacramento area has seen construction grind to a halt, saying it looked “like the Dust Bowl.” But, in the Central Valley, “unfinished shopping centers are coming back to life,” he said, adding, ”Health care has been strong throughout [the] entire turndown.”

T. Dean Word, III, a partner at Texas-based Dean Word Co., a heavy highway contracting firm, says work is exploding in Texas, primarily because of the Eagle Ford Shale play. There’s a “tremendous drive for lodging, man camps and 24-hour labor,” he says. And because of the demand, “bid prices are also going up.” He also sees signs of commercial construction returning and notes that the surface transportation reauthorization bill that passed last year, MAP-21, has been a “godsend and much needed.”

Maryland firms plan to hire the most construction workers this year and lay off none, according to the survey, while South Carolina firms will add the fewest. Michigan, appears to still be feeling the significant effects of the downturn, and 37% of firms surveyed there say they are planning layoffs.

Economic challenges

“The industry appears to be heading in [the] right direction, but many firms face continuing economic headwinds,” said AGC Chief Executive Stephen Sandherr. While 41% of respondents said bank lending did not affect them or their clients’ project, about 40% said bank credit had caused delays or cancellations of client projects.

Seventy-two percent of respondents say their cost for materials increased in 2012 and 71% see it increasing again this year. The cost of providing health care insurance to employees was also up in 2012 for 75% of the respondents, and 77% are expecting it to go up again in 2013.

Spending on construction equipment is not yet likely to change as the possible recovery in the sector is tentative at best. Thirty percent of the firms didn’t buy equipment in 2012 and 36% don’t plan to buy any this year.

Other challenges

“Skilled labor is in short supply,” said Nunan, a sentiment shared by Word. “Even a normal construction program is straining the labor halls,” said Word. ”They count on workers coming down from Sacramento and even further away to fill the ranks. When we get to a significant volume, we’ll see significant strains.”

Simonson said he didn’t think the shortage would become a national issue in the coming year. “Most workers will still be available for modest increases in construction activity, although there will be some pockets where that is a problem,” he acknowledged.

Nunan sees the shortage as a structural issue and said, “Our education systems aren’t set up to deal with trades education as they were 30 to 40 years ago.” But he also sees a new trend that pleases him. “There’s a tremendous influx of immigrants who have entered vocational programs,” he said. “They’re not encumbered by the ‘oh-I-have-to-go-to-college’ mindset.”

Meanwhile, the hard workers, optimists and executives at AGC are “cautiously optimistic” about this new year. “With luck and a lot of work, the hard-hit construction industry should be larger, healthier, more technologically savvy and more profitable by the end of 2013 than it is today,” said Sandherr.

To learn more about this report, please visit Associated General Contractors at www.agc.org or contact the construction professionals of McKonly and Asbury, LLP.

Home Construction Makes Comeback In 2012

Home construction starts in December were at their highest level since June 2008 as the residential building industry closed out a fairly strong year of recovery.

The U.S. Commerce Department said Thursday that builders broke ground on a seasonally adjusted annual rate of 954,000 homes in December. That was 12.1 percent higher than November's annual rate.

June 2008 was the last time housing starts cracked 1 million.

In the wake of the housing market collapse, new construction dried up over the latter part of the last decade. There were some improvements in 2011 and a stronger recovery in 2012, according to the federal data.

Builders started on 780,000 homes in 2012, which was 28.1 percent above 2011.

Single-family starts in December were at a rate of 616,000. That was up 8 percent from November, the Commerce Department said.

On housing completions, the seasonally adjusted annual rate in December was 686,000, which was 1.6 percent above November and 13.2 percent higher than December 2011.

An estimated 651,400 housing units were completed in 2012. That was up 11.4 percent over 2011.

Residential building permits also were up in December. The seasonally adjusted annual rate was 903,000 compared with 900,000 in November and 701,000 in December 2011, the Commerce Department said.

Permits also began a steep descent in the summer of 2008. December was the highest month since July 2008.

Construction Spending Up 7.7 Percent in November

Construction spending increased by 7.7 percent in the year between November 2011 and November 2012, to nearly $866 million, according to seasonally-adjusted data released by the United States Census Bureau.

Month-to-month, the preliminary spending figure of $865.9 million is down 0.3 percent from October 2012’s revised figure of $868 million. The slight month-to-month drop is the first in at least five months, Census data shows.

Overall residential construction saw an 18-percent increase between November 2011 and November 2012 to nearly $302 million, while nonresidential construction saw a 2.9-percent increase to $564 million.

Among the nonresidential market, the power and transportation markets saw major increases in the past year, with a 13.4-percent increase to about $90 million and a 22.7-percent to approximately $41 million, respectively. The growth in transportation spending comes on the heels of the transportation reauthorization bill passed in July.

Some of the largest decreases were religious, dipping 9.9 percent to approximately $3.5 million; water supply, dropping 9.5 percent to about $13 million; and conservation and development, which saw the largest decrease of 16.3 percent to about $5.5 million.

To learn more about this report, please contact the construction professionals of McKonly and Asbury, LLP.

Owners Lack Confidence in Their Response to Challenges Facing Construction Industry, FMI Says

A survey of buyers of engineering and construction services found that many are not confident in their ability to respond to the challenges facing the industry. “Owners have the least confidence in their responses to economic shifts, funding, availability of qualified partners, compliance and permitting, and availability of internal staff,” FMI said in its 2012 Owners’ Survey. “Respondents are most confident in their response to contractor failures, with 55 percent reporting confidence in their response.” Key findings of FMI’s survey, presented on Nov. 13 at the Construction Users Roundtable’s 2012 national conference in Orlando, Fla., include:

• 72 percent of those worried about the impact of limited project funding are not confident in their response to the challenge.
• More than 50 percent of those worried about the impact of limited internal staffing and skilled labor are not confident in their responses to these issues.
• While only 20 percent of respondents are worried about the availability of qualified     planning, design and construction partners, nearly 90 percent of those respondents are not confident in how they are responding to the issue.
• Availability of project funding is the top concern for owners, with 50 percent of responses anticipating the issue to have a moderate to high impact on their capital programs.
• More than one-third of respondents believe regulatory compliance and permitting will have a significant impact on their capital programs.
• High unemployment has not led to an abundance of top talent for owners, as the      availability of both internal staffing and skilled labor are expected to adversely affect capital programs.
• Project delays are affecting 83 percent of respondents, while cancellations are affecting 41 percent.
• The most commonly cited reason for delays is changes in project scope, with 58 percent of those experiencing delays citing it as a reason.

FMI surveyed a broad range of construction industry sectors, geographies and types of owners, each with unique capital program needs. Publicly traded stock corporations and private organizations represented 60 percent of respondents, while government organizations at the federal, state and local levels made up 40 percent.

To learn more about this survey and FMI contact FMI at www.fmi.org or the construction professionals of McKonly and Asbury, LLP.