Steel Markets

Construction Spending Edges Up in February

April 2, 2019

Construction spending increased 1.0 percent in February following a 2.5 percent gain in January, reported the Associated General Contractors of America in its latest analysis of government data.

Construction spending totaled $1.32 trillion in February, up 1.0 percent from the January rate and a gain of 1.1 percent compared to February 2018. Public construction accounted for the bulk of the monthly and annual increases, while private categories were mixed, noted AGC economist Ken Simonson. Public construction spending jumped 3.6 percent for the month and 11.5 percent year-over-year. The largest public category, highway and street construction, soared 22.8 percent from a year ago. Educational construction, the next-largest segment, rose 5.5 percent year-over-year.

Private nonresidential spending slipped 0.5 percent for the month and inched up 0.1 percent from a year ago, while residential spending climbed 0.7 percent from January to February but declined 3.4 percent from February 2018. Among the largest private nonresidential segments, power construction (electric power plus oil and gas field and pipeline projects) gained 1.4 percent year-over-year; commercial construction (retail, warehouse and farm structures) declined 6.6 percent; manufacturing construction increased 3.4 percent; and office construction rose 4.8 percent. Among residential segments, new multifamily construction spending rose 7.5 percent year-over-year, but new single-family construction spending decreased by 7.1 percent, while improvements slipped 1.5 percent.

Higher Costs for Construction

The increase in construction spending coincides with escalating construction costs. The PEG Engineering and Construction Cost index rose to 60.4 in March from 55.3 in February due to increases for both materials and labor.

The materials and equipment price index rose to 60.7 from 54.9 in February with survey respondents noting price increases in 10 of the 12 subcomponents. Fabricated structural steel and carbon steel pipe prices were the only components of the index to decrease during the month.

Worker Shortage Continues

Simonson said contractors expect to stay busy throughout 2019, but the “major challenge they face is finding enough workers.” Attracting and retaining employees is adding to labor costs as firms offer pay incentives to attract qualified workers.

“U.S. construction labor markets remain incredibly tight and shortages are widespread. Even firms that are willing to raise wages and offer bonuses are having trouble finding experienced workers,” said Emily Crowley, principal economist, Pricing and Purchasing, IHS Markit.

Crowley noted that construction workers left the industry during the Great Recession and firms are now struggling to find mid-career workers to replace retirees. Additionally, the resurgence of the oil and gas industry has put strain on the labor market on the Gulf Coast.

Labor costs are expected to continue to challenge the industry, with subcontractor labor costs increasing at a faster rate last month, up 7.9 points to 68.1.

AGC reports that construction employment grew in 232 out of 358 metro areas tracked between February 2018 and February 2019. Employment declined in 73 areas and was unchanged in 53.0 percent

AGC is urging federal officials to invest more in career and technical education to attract young adults to the industry. “Contractors nationwide report difficulty finding enough workers to keep pace with the strong demand for projects,” said Stephen E. Sandherr, AGC’s chief executive officer. “Expanding high school career and technical education programs will expose students to the rewarding career paths offered by high-paying construction jobs.”