Report: The state of construction

The National Association of Home Builders’ (NAHB) Chief Economist Robert Dietz recently reported that builder sentiment slipped slightly in April 2018 due to ongoing concerns about elevated lumber prices and the lingering effects of inclement weather in some areas. Builder confidence in the market for newly-built single-family homes edged down one point to a level of 69 in April on the NAHB/Wells Fargo Housing Market Index but remains stable.

Meanwhile, housing continues to grow at a modest pace. Despite a 3.7 percent decline in single-family starts in March, total starts increased 1.9 percent due to a strong showing for the apartment sector. Compared to the first quarter of last year, 2018 has seen several gains, including a seven-percent rise in single-family starts, a five-percent increase in permits and a 10-percent growth in sales of new single-family homes.

According to Dodge Data & Analytics, new construction starts in March increased 11 percent from the previous month to a seasonally adjusted annual rate of $785.2 billion. The substantial gain followed modest declines in January (down two percent) and February (down three percent), and brings the pace of total construction starts to the highest level over the past six months.

April marked the 18th month that North American construction costs increased, reported IHS Markit, with uncertainty around steel prices as a result of the United States’ recently imposed steel tariff. Prices were up in all 12 categories the IHS Markit PEG Engineering Construction Cost Index tracks, which pushed the index to 61.48, more than four points higher than its March reading. The price hikes for fabricated structural steel, carbon steel pipe and alloy steel pipe are being helped along by questions around costs and availability after a U.S. steel tariff of 25 percent went into effect last month. Imported aluminum was hit with a 10 percent tariff as well.

IHS Markit said U.S. trade policy will likely impact future material prices but that market indecision about steel pricing should clear up when the U.S. issues its decision about which companies will be exempt from the tariffs. Major steel providers like Mexico and Canada already have been issued temporary exemptions.

Finally, the overall trend for open construction jobs has been increasing since the end of the Great Recession and access to labor remains a top challenge for builders. While the count of unfilled jobs in the construction sector declined in February, it remains higher than a year ago.

According to the BLS Job Openings and Labor Turnover Survey and NAHB analysis, the number of open construction sector jobs came in at 196,000 in February. The post-recession high count of open, unfilled construction jobs was 255,000 in July of last year. The number of open construction sector jobs was 169,000 a year ago.

The open position rate (job openings as a percentage of total employment plus current job openings) for February increased to 2.7 percent. On a 12-month moving average basis, the open position rate for the construction sector remained at 2.9 percent, a post-recession high.

The construction sector hiring rate, as measured on a 12-month moving average basis, held steady at 5.2 percent in February. The 12-month moving average for layoffs is falling again, declining to 2.6 percent. The quits rate increased to 2.4 percent in January.