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Construction Jobless Rate Down in Nov. as Industry Adds 17,000 Jobs

The construction industry’s unemployment rate improved in November, falling to 8.6% from October’s 9%, and also was down sharply from the December 2012 rate of 12.2%, the Bureau of Labor Statistics has reported.

The latest BLS status report on the nation’s employment, released on Dec. 6, also notes that construction gained 17,000 jobs in November.

All construction sectors posted jobs increases last month, led by residential specialty trade contractors, which added 7,100, and nonresidential specialty trade firms, which gained 5,400 positions.

Heavy and civil engineering construction recorded the smallest jobs pickup among the industry's segments, expanding by just 200.

Architectural and engineering services, a separate BLS category, added 1,000 jobs in November.

The Associated General Contractors of America noted that the November construction job gains boosted total construction employment to 5.85 million, the industry’s highest mark since August 2009.

Ken Simonson, AGCA chief economist, called the latest jobs numbers “very encouraging,” but also said “growth remains uneven by segment, region and time period.” Moreover, the association noted that construction’s total workforce still lags its August 2006 peak by almost 1.9 million.

Anirban Basu, Associated Builders and Contractors chief economist, said the nonresidential sector gain of 7,700 jobs in November was encouraging. The total reflects the specialty trades' pickup of 5,400 plus nonresidential bulidings' addition of 2,300.

Basu said, "November is the third consecutive month nonresidential construction experienced job growth , which is positive after seeing job losses April through August."

The overall U.S. unemployment rate declined to 7% last month from October’s 7.3%, as the economy added 203,000 jobs. November's rate is the lowest monthly level since November 2008’s 6.8%.

Report Shows Construction Industry Rebound But Not Without Headwinds

According to a new U.S. Construction Industry Outlook released by Euler Hermes, a leading global provider of trade credit insurance, the U.S. construction industry is expected to maintain its rebound as the nation’s economy improves, but not without facing headwinds.

“Thus far, the recovery has been biased toward existing home sales,” said Kim Fleischer, construction sector analyst at Euler Hermes. “We hypothesize that rising rates pulled forward hesitant buyers who were waiting for a bottoming of rates, while simultaneously discouraging buyers from entering contracts on new homes.”

In addition, commercial construction, which has experienced 8.5% annual declines over the past five years, is expected to rebound over the next five years.

Key points outlined in the report include:

• The residential housing market has begun to show a sustained improvement as a result of lower inventory, rising prices, attractive financing to qualified buyers, as well as an improvement in the general economy.
• Commercial construction has also begun to rebound, but not as quickly as the residential sector due to the large number of vacancies and longer lead-times required to complete new projects.
• Concerns about the Fed "taper" have recently caused a run-up in mortgage rates from 3.47% in January to 4.41% as of August. Higher rates have led to a slowdown in refinancing activity, but the full impact on the nascent housing recovery is indeterminate.

The full report can be accessed at www.eulerhermes.us.

Bond Claims: Three Mistakes That Can Cost You

The following post was first seen in the December addition of the CFMA Update. The post was written by Scott Wolfe of CFMA.

If an account goes unpaid and you’re unable to collect from your customer, a claim against the payment bond guarantees your cash. Just don’t get burned by mistakes commonly made with the bond claim process. Here are three costly mistakes.

1. Examining the Bond Terms, but Ignoring State & Federal Laws

Every payment bond has “terms” dictating how a claim should be made, but these terms are often irrelevant since state or federal laws control the claims process. If you rely on the bond’s terms and ignore the state law, then you’ll be doomed.

Improvements to state, county, or federal property, for example, must be bonded. Claimants must follow the state or federal procedures to make a claim against these bonds. More than 30 states have some type of preliminary notice requirement to make a bond claim (just like a mechanics lien claim). More than 45 states have a rigid filing deadline for bond claims.

Giving attention to the bond’s terms and not the applicable law is perilous. On the other hand, following the state or federal law for claim-making standards and ignoring the bond’s terms is usually a safe practice, as conflicts between the two are resolved in favor of the statutory standards.

2. Confusing Bonded Projects with Unbonded Projects

Are you sure you are working on a bonded project? Incorrect information can be fatal to your rights.

Generally speaking, projects on federal, state and county properties will be bonded projects and those on private property will be unbonded. Nevertheless, there are always exceptions. It is difficult to know the nature of every project. Incorrect information about a project may leave you protecting a claim you don’t have and ignoring measures that could preserve your rights.

This is a bigger problem than you may think. Construction projects are sometimes the product of Public-Private Partnerships, or the lease of public property to a private business (e.g., airport vendors). It’s hard to know the character of these projects.

Avoid this mistake in two ways: 
(1) Research every project when starting to furnish; and (2) Request a copy of the bond.

3. Not Following Up with Data

Filing the bond claim document is an essential first step to getting paid on a bonded project, but it is not the only step. It is a mistake to think you can file the bond claim and wait for payment. Not only is this very unlikely to happen, but it’s actually dangerous, as your claim rights may expire while you wait.

Follow up with the bonding company. They will ask for backup information to prove your debt. Provide that information and follow up, follow up, follow up.

Many states have a statutory time limit for the life of a bond claim. If the claim representation delays long enough, the life of the bond claim may expire and then you will be out of luck.

As mentioned, the above post was first seen in the December addition of the CFMA Update and the post was written by Scott Wolfe of CFMA. For further information on this post, please contact the construction professionals of McKonly & Asbury.

Decline in Percentage of Contractors That Own Prefabrication Facilities Attributed to ‘Inherent Challenges’

An FMI survey on prefabrication and modularization found that 81 percent of construction managers, general contractors, and electrical and mechanical contractors own their own prefabrication facilities. This figure, however, is down 9 percent since 2010. FMI attributed the decline in facility ownership to “inherent challenges within the modularization method.” FMI said these challenges include:

• Selecting the right type of projects for modular construction.
• State rules about large assemblies being transported on roads.
• Locating modular-assembly areas close to construction sites.
• Convincing people that prefabrication and modularized units can produce superior quality buildings.
• Assuring that the work produced meets code.
• Proving that the construction method works and saves money.
• Reducing changes after the work is designed and built.

The practice, however, is not dying, according to FMI. Sixty-one percent of survey respondents said they expect to see growth in prefabrication facilities over the next five years. “Industries that require construction of multiple facilities of similar design, such as health care, lodging and education, may see faster growth than other sectors,” FMI said. Driving forces that may have the potential to fuel growth include:

• Pressure to reduce cost, while achieving a competitive edge.
• The impending lack of skilled construction labor.
• The use of BIM, allowing greater coordination of design with construction.
• The need to increase productivity.

Download the 2013 Prefabrication and Modularization in Construction survey.

Construction Still Not Buying into LEAN

LEAN construction boosters have a big job ahead of them. In a recent survey of 193 construction firms, 48% report they are not even familiar with the concept of LEAN construction -- broadly defined as the elimination of waste from construction processes. The survey, released Nov. 13, was conducted by McGraw-Hill Construction, ENR's publisher.

Dassault Systemes, a software vendor that introduced a LEAN construction digital tool  early this year, sponsored the market study. More than half of the contractors and subcontractors that responded to the survey that are not familiar with LEAN practices said they find the cnostruction industry either efficient or highly efficient. More than 60% of practitioners of some level of LEAN construction disagree.

LEAN construction, which has its own association called the LEAN Construction Institute, relies on the adoption of several strategie, among them the Last Planner System developed by LCI.

Though the level of LEAN practice of each responder is not disclosed in the results, 77% of those that implement some level of LEAN construction say jobsite safety is improved, there is improved jobsite safety; 80% say customer satisfaction is improved; 84% say construction quality is better; 74% say the schedule is shorter; 77% say productivity is improved; 64% report greater profitability and reduced costs; and 71% say LEAN contributes to improved risk managerment. 

More details are available at http://www.construction.com/market_research/. To learn more about the concepts of LEAN and how they could benefit your construction entity, please visit the McKonly & Asbury LEAN Accountants website at www.leanaccountants.com. There you will find numerous posts on the many facets of LEAN. 

Construction Economic Data Signals Continued Growth in the Industry

Some of the industries leading economic indicators continue to show cautious optimism for growth in the industry through the remainder of 2013 and through 2014. Below is a number of leading industry indicators to discuss the current economic conditions for construction.

CONSTRUCTION BACKLOG INDICATOR

Associated Builders and Contractors (ABC) today reports its Construction Backlog Indicator (CBI) rose 3.9 percent during the second quarter of 2013 and now stands at 8.2 months, up from 7.9 months the previous quarter. Construction backlog is up 6.6 percent compared to the same time last year. CBI reflects the amount of commercial and industrial construction work under contract, but not yet completed.

Regional Highlights

• Northeast experiencing backlog expansion from 7.28 months to 9.41 Months

Industry Highlights

• Industry-specific data reflect the contrast in nonresidential construction spending patterns, with privately financed segments generally outperforming publicly financed segments.  
• Construction backlog in the infrastructure segment has declined for two consecutive quarters and is more than 1 month below last year’s second quarter level. 
• While construction backlog expanded in the heavy industrial segment during the second quarter, the most sustained progress has been observed in the commercial and institutional category, which is most directly aligned with household spending. 

Highlights by Company Size

• Larger firms continue to capture market share. Backlog among surveyed contractors associated with more than $100 million in annual revenues is now approaching 12.3 months, which represents roughly a 50 percent increase in backlog since late 2009.
• Firms with less than $30 million in revenue, a group heavily comprised of subcontractors that specialize in a handful of disciplines, also rose in the second quarter, but remains proximate to year-ago levels.
• The group exhibiting the least momentum are contractors with between $30 million and $50 million in annual revenues. These firms are often competing directly with larger contractors with a greater ability to develop and retain talent, as well as solidify key banking and insurance relationships.

ENR CONSTRUCTION INDUSTRY CONFIDENCE INDEX (CICI)

CICI measures executive sentiment about the current market and reflects their views on where it will be in the next three to six months and over a 12 to 18 month period.

• The second –quarter 2013 CICI rose to a record 69 points on a scale of 100, which represents a growing market
• Virtually all the market sectors measured by the CICI are now in growth mode.
• For the first time, all market sectors had a CICI rating over 50, indicating expected market growth over the next 18 months.

FMI CONSTRUCTION OUTLOOK REPORT

The report details Construction Put In Place (CPIP) in three residential building, 11 nonresidential building and five non-building structure categories.

• Annual CPIP predictions shrink to $909 billion in Q3 2013 from $913 billion in Q2 2013.
• Although prediction is down from Q2 2013, overall growth is 6% from 2012.
• FMI does expect growth to return to 7% in 2014 with annual CPIP reaching $977 billion.

Major market predictions include:

• Residential Construction — FMI continues to forecast traction in residential construction. However, the growth is expected to taper off to 12% in 2014. Total predicted residential forecast is $379.6 billion, compared with the $338.2 billion for 2013.
• Commercial Construction — The current forecast calls for a 5% increase in 2014. Although retail sales as of June 2013 were up 5.7% over the previous year, new bricks and mortar retail space along with commercial other construction growth will remain slow to recover.
• Healthcare —With business owners nervous about the costs of the Affordable Healthcare Act, predictions are slightly unstable. Although the healthcare construction forecast slipped 1% since last year, it is still expected to grow 6% in 2014 to $44 billion.
• Educational — The increase in residential construction and tax revenues will help bring this market back in many areas of the country. Due to budget cuts for government spending at all levels, the national market will rise only slightly in 2014 to 4% over 2013 levels.
• Manufacturing — The resurgence of the automotive industry is a big boost to manufacturing as is the continuing explorations and mining for shale oil and gas. However, manufacturing construction is expected to drop 2% by year-end 2013 before returning to 4% growth in 2014.
• Highway and Street — Passage of MAP-21 calls for nearly $38 billion for the fiscal year 2014 for the Federal-Aid Highway Program. This is a major contributor to the CPIP predications of nearly $80 billion for 2014.

ARCHITECTURE BILLING INDEX (ABI)

The ABI is an economic indicator that reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The ABI index scores are centered around 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline in billings.

The American Institute of Architects (AIA) reported the September ABI score was 54.3, up from a mark of 53.8 in August. The new projects inquiry index was 58.6, down from the reading of 63.0 the previous month.

• Regional averages: West (60.6), South (54.1), Midwest (51.0), Northeast (50.7)
• Sector index breakdown: commercial / industrial (57.9), multi-family residential (55.6), mixed practice (55.4), institutional (50.4)
• Project inquiries index: 58.6

CONFINDEX QUARTERLY READING

CONFIDENX is a leading economic indicator of the health of the commercial construction in the US. CONFINDEX is CFMA’s proprietary confidence index survey of CFO’s in the commercial construction sector.

• The overall CONFINDEX has remained flat in 2013 holding at an average of 128.
• The index is up 3.2% from a year ago.
• Results are consistent with expectations for continued gradual construction industry recovery.

2014 FORECASTS

Long term outlook for the construction industry continues to show slow and steady growth through 2014 and into 2015.

Major Association forecasts from ABC, CFMA and AGC are due out in late November and December for 2014. All signs are pointing to growth for 2014.

Other indicators such as job growth and construction spending growth are solid signs for a strong 2014.

To learn more about how these economic indicators can effect your specific construction business, please contact the construction professionals of McKonly & Asbury.

2014: A Year of 'Measured Expansion' for Construction Industry

Don't expect a boom in 2014, but rather another year of “measured expansion” in the construction industry.

A recent forecast from McGraw Hill Construction, a division of New York-based McGraw Hill Financial, predicts that total U.S. construction starts next year will rise 9 percent to $555.3 billion. That is up from the 5 percent increase estimated for 2013.

Despite uncertainty and federal spending cutbacks, McGraw Hill expects steady job growth, low interest rates and an improving lending environment to benefit the construction industry.

McGraw Hill is projecting the following:

• Single-family housing: 26 percent growth in dollars, corresponding to a 24 percent increase in units to 785,000. This growth is attributed to the pace of foreclosures easing, home prices rising and mortgage rates remaining low. Demand for housing will be restrained by tighter lending practices.

• Multifamily: 11 percent increase in dollars and 9 percent bump in units. This reflects a maturing multifamily market that has grown a lot over the last few years. High-rise development should remain attractive to real estate investors with an eye on major cities.

• Commercial building: 17 percent increase with warehouses and hotels expected to lead the way. Retail and office buildings will pick up the pace. More bank lending for commercial development will help the market.

• Institutional: 2 percent increase after five years of decline. Colleges are revisiting capital expansion plans and recent bond measures in several states should help K-12 projects. Health care construction should remain flat, given continued emphasis on cost containment.

• Public works: 5 percent decrease after a 3 percent gain that was lifted by the start of several large highway and bridge projects. Continued focus on deficit reduction will limit federal support.

• Electric utility: 33 percent decline, due to sharp declines in capacity utilization, which limits near-term need for new generating capacity. The need for transmission line work remains strong.

Spending Forecast

The American Institute of Architects Consensus Construction Forecast Panel, in July, forecast a 7.6 percent increase in nonresidential construction spending for 2014.

The panel is conducted twice a year with the leading nonresidential construction forecasters, including McGraw Hill Construction, IHS-Global Insight, Moody's Economy.com, FMI, Reed Construction Data, Associated Builders & Contractors and Wells Fargo Securities.

The July report projected an 11.5 percent spending increase in commercial construction, 6.3 percent in industrial and 5.6 percent in institutional construction.

Owners Shift More Financial Risk as Recovery Remains Sluggish

Burdened by a sluggish economic recovery, cash-strapped public and private owners are shifting greater risk onto contractors through onerous deal terms with non-traditional project responsibilities.

Contractors, as a result, must be alert to new risks, resist them whenever possible and keep costs low to stay profitable.

That was the consensus of presenters during the AGC/CFMA Construction Financial Management Conference, which took place Oct. 23-25 in Las Vegas.

The financial consequences of the risk-shifting are hitting subcontractors first since “they are furthest from the cash flow,” says Teresa Martin, vice president of Lockton Cos. LLC, Kansas City. The subs borrow more as costs rise and payments drag out, she said.

For several years, brokers have said that gradually increasing but not yet alarming surety loss ratios may mask differences based on size and market share. Top sureties with large, reliable clients and the majority of the bonded contract value report significantly lower loss ratios than smaller sureties with more small general and specialty contractor clients.

At the same time overall losses are manageable but creeping higher, sureties are unable to increase premium.

“Surety rates are down as new players join the fray and dilute prices with added capacity, helping drive profitability down 50% through June 2013” compared to the prior year, says Rick Ciullo, chief operating officer of Chubb Surety, Warren, N.J.

Meanwhile, greater reliance on technology and increased collaboration, including public private partnerships and design-build, are “clouding how insurers respond to claims,” says Danette Jones, senior vice president, Marsh Inc., Los Angeles.

The volume of teaming projects nearly tripled between 2005 and 2011, with103 jobs in excess of $1 billion in 2011 up from none six years prior.

“We’re seeing larger, more complex project that require collaboration and communication,” says Brian Perlberg, executive director, ConsensusDocs, Alexandria, Va.

A Flurry Of Good News For the Construction Market

U.S. Construction Spending Approaches a 4 ½ Year High

U.S. construction spending hit a near 4-1/2 year high in August, boosted by increases in both private and public outlays, a hopeful sign for third-quarter economic growth.

Construction spending increased 0.6 percent to an annual rate of $915.1 billion, the highest level since April 2009, the Commerce Department said on Tuesday.

Construction spending in July was revised to show a 1.4 percent rise instead of the previously reported 0.6 percent gain.

The report was originally scheduled for release on October 1 but was delayed after the federal government was partially shut down because of a fight over the budget. The 16-day shutdown ended last Wednesday.

Construction spending in August was lifted by a 0.4 percent rise in public construction projects. That was the fourth consecutive month of gains and came even as federal government spending on construction projects tumbled.

There was also a boost from spending on private construction projects, which increased 0.7 percent to its highest level since January 2009.

Private residential construction spending jumped 1.2 percent to a five-year high, showing little sign that high interest rates were slowing activity. Part of the increase in residential construction spending reflected home improvement projects.

Architecture Billings Keep Growing

Demand for architectural design services continued to increase in September, according to the Architecture Billings index survey conducted each month by the American Institute of Architects. At 54.3, the September score—up from 53.8 in August—shows a continued acceleration of billings and work for architecture firms. In each of the past four months, the score has come in slightly higher each time. (Scores above 50 indicate industry growth and below 50 indicate industry contraction.)

While billings are accelerating, project inquiries cooled off ever-so-slightly. At 58.6, the inquiries score is still quite high, but it is lower than the elevated score of 63.0 recorded in August. In fact, six of the nine months of 2013 have seen this score come in higher than 60.

National Highlights
Billings: At 54.3, up from August’s 53.8, this is the fifth straight month above 50. Eight of the nine months of 2013 have come in above 50, as have 13 of the past 14 months.
Project Inquiries: At 58.6, this score is down from 63.0 in August.

Regional Highlights
Northeast: At 50.7, down from 53.0, this is the 13th straight month above 50.
Midwest: At 51.0, down from 51.7, this is the third straight month above 50. Six of the nine months of 2013 have come in above 50 for this region.
South: At 54.1, up from 52.8, this is the 15th straight month above 50.
West: At 60.6, up from 58.2, this is the 14th straight month above 50. Looking at the past data, this also appears to be the highest score for the West region in the history of the ABI. 

Sector Highlights
Multifamily Residential: At 55.6, up from 54.6, this is the 17th straight month above 50. In fact, this sector has dipped below 50 only once in the past two years. 
Commercial/Industrial: At 57.9, up from 55.5, this is the 12th straight month above 50, and the highest score for the sector since November 2007. 
Institutional: At 50.4, down from 50.7, this is the 14th straight month above 50. 
Mixed Practice: At 55.4, down from 57.9, this is the 13th straight month above 50.