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May's Nonresidential Construction Starts +19% M/M, +77% Y/Y, & +29% YTD Blog Feature

By: Alex Carrick, Chief Economist on June 15th, 2022

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May's Nonresidential Construction Starts +19% M/M, +77% Y/Y, & +29% YTD

May Outdoes April for Megas

ConstructConnect announced today that May 2022's volume of construction starts, excluding residential work, was $63.4 billion, an increase of +18.9% versus April’s figure of $53.3 billion (previously reported as $52.6 billion). An increase of nearly one-fifth month to month is about double the usual climb at this time of year due to seasonality (i.e., less inclement weather than in winter, facilitating onsite work outdoors.)

More strikingly, the latest month’s result was ahead by three-quarters (+76.5%) when compared with the nonresidential starts dollar volume in May of last year. The reason has to do with an abundance of groundbreakings on large and mega-sized (i.e., of a billion dollars or more each) projects in May of this year. The nonresidential starts improvement year to date, compared with January-to-May 2021’s performance, has now moved up to +28.8%.

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Click here to download the complete Construction Industry Snapshot Package - May 2022 PDF.

In April’s Industry Snapshot report, special mention was made of megaproject starts. There were five of them, with a total estimated dollar value of $17.1 billion, the largest one being an LNG facility in Louisiana. Remarkably, May 2022 went a further step beyond April 2022. May’s number of megaprojects was one less, at four, but the total dollar amount soared to $20.0 billion. The standout project is a $15 billion semiconductor wafer manufacturing plant for Texas Instruments in Sherman (north of Dallas), Texas. In media reports, a $30 billion figure is being quoted, but likely half of that will be for equipment, the setting up of clean rooms, and so on.

Also among the megaproject groundbreakings in May are two hospital jobs, in Philadelphia and Indianapolis. This is good to see since the weak showing in hospital starts statistics during much of the pandemic has been a bit of a mystery and hard to explain. The other megaproject, and not unexpected, is the building of additional passenger gates at Terminal 4, JFK Airport, New York.

Many signs point to an overall economy that is presently slowing down. Construction of significant large projects has languished for a long time, however, and it appears a correction or reversal is underway. Huge dollar spending has been announced for car and battery plant expansions (both related to electric vehicle manufacturing), more in the way of computer chip-making capacity, steel mill production, LNG exporting sites, and resource development.

GRAND TOTAL starts in May 2022 (i.e., adding residential to nonresidential activity) were +6.7% m/m, +37.9% y/y and +16.0% ytd.

NRB and Engineering Outrun Residential

There are three major subcategories of total starts: residential, nonresidential building, and heavy engineering/civil. On a year-to-date percentage-change basis in May 2022, nonresidential building and engineering starts were both well ahead, +31.6% and +24.6% respectively, while residential was basically standing still, +1.6%.

On a month-to-month basis in May, nonresidential building starts were out front, +24.1%, followed by engineering, +9.4%, with residential stumbling somewhat, -12.9%.

Y/Y Trailing 12-Month Starts Stats on Uptrend

Other statistics often beloved by analysts are trailing twelve-month (TTM) results and these are set out for all the various type-of-structure categories in Table 10.

Grand Total TTM starts in May 2022 on a month-to-month basis were +3.2%, a slight pickup from April’s +2.2%, and a notably sunnier outcome than March’s -0.5%.

On a year-over-year basis in May 2022, GT TTM starts were +12.6%, proceeding at a pace a little faster than both April’s +10.4% and March’s +10.0%.

Res Vs. Nonres Shares of Total PIP Tilt in Favor of Former

Starts compile the total estimated dollar value and square footage of all projects on which ground is broken in any given month. They lead, by nine months to as much as two years, put-in-place (PIP) statistics which are analogous to work-in-progress payments as the building of structures proceeds to completion.

PIP numbers cover the universe of construction, new plus all manner of renovation activity, with residential traditionally making up two-fifths (about 40%) of the total and nonresidential, three-fifths (i.e., the bigger portion, at around 60%). Or at least that’s the way things used to be.

Over the past several years of the pandemic, though, the mix has undergone quite a shift. In 2021’s full-year PIP results, the residential to nonresidential relationship was approximately half and half. Through April 2022, the ratio, on a not seasonally adjusted basis, has tilted even more in residential’s favor, pitting 51.4% against 48.6% for nonresidential. (Nonresidential is nonresidential buildings plus engineering). April is the latest available month for PIP stats.

The January-April 2022 over January-April 2021 total dollar volume of PIP construction was +12.4%, with residential being +18.8% and nonresidential, +6.3%. In the second half of 2022, nonresidential activity should reclaim more of its traditional market share of ‘total’ relative to residential. The type-of-structure starts series point in that direction, although it needs saying that residential, at least in PIP terms, has been tenacious, with good staying power, so far.

PIP numbers, being more spread out, have smaller peak-over-trough percent-change amplitudes than the starts series. As an additional valuable service for clients and powered by its extensive starts database, ConstructConnect, in partnership with Oxford Economics, a world leader in econometric modeling, has developed put-in-place construction statistics by types of structure for U.S. states, cities, and counties, actuals, and forecasts. ConstructConnect’s PIP numbers are being released quarterly and are featured in a separate report.

Construction Claimed More Than Its Share of Total Jobs Increase

Construction’s share of May’s total nonfarm employment in the monthly Employment Situation report was 5.1%. To claim its proportional share of May’s total job count increase of +390,000, the figure for construction would have been +20,000. Instead, it was nearly double, +36,000. Most active in hiring and combining to account for two-thirds of the +36,000 in the latest month, were engineering/civil contractors (+11,000) and residential subcontractor trades (+12,000 jobs).

The not seasonally adjusted unemployment rate for all jobs in May was 3.4%. For construction as a subset of all jobs, the NSA U rate was a tight 3.8%. The previous month’s figure was 4.6%. A year prior, in May 2020, construction was looking at a 6.7% NSA U rate.

The construction sector has recovered all the jobs it shed between February and April 2020 when COVID-19 first pounced and sent the economy spinning. The jobs claw back ratio for all jobs, at 96.3%, isn’t all the way back yet. Manufacturing is at 98.8%. As for year-over-year jobs count percentage changes, neither manufacturing, +4.1%, nor construction, +3.8%, are doing as well as all jobs, +4.5%. But the +4.5% is being boosted by the sector that most fell into disarray in Spring 2020, leisure and hospitality, where the number of jobs in latest May was +13.1% y/y.

In other segments of the economy with close ties to construction, the latest y/y percentage changes in employment have been as follows: oil and gas exploration and development, +18.4%; machinery and equipment rental and leasing, +9.9%; architectural and engineering design services, +5.8%; real estate, +4.2%; cement and concrete product manufacturing, +2.0%; and building materials and supplies dealers, -2.4%.

The latest (April 2022) Architecture Billings Index from the American Institute of Architects, which provides a gauge of the demand for construction design services, remained strong at 56.5, well above the 50.0 benchmark that indicates flat activity.

Graph 1: Change in Level of U.S. Construction Employment, Month to Month (M/M) −
Total & by Categories - May 2022

Graph 1

Table 2: Monitoring the U.S. Employment Recovery - May 2022

Table 2

Graph 2: U.S. Employment May 2022 - % Change Y/Y
Based on Seasonally Adjusted (SA) Data

Graph 2

Graph 3: Y/Y Jobs Change, U.S. Total Industry & Major Subsectors — May 2022 (Based on Seasonally Adjusted Payroll Data)

Graph 3

Graph 4: U.S. Construction Employment (SA) & Unemployment Rate (NSA)

Graph 4

 

Pluses and Minuses Among the Type of Structure Subcategories

May 2022’s +18.9% month-to-month (m/m) increase in total nonresidential starts resulted from gains in all the major type-of-structure subcategories, with industrial (+35.6%) leading the way, followed by institutional (+21.3%), commercial (+13.9%) and engineering/civil (+9.4%).

The +76.5% performance of total nonresidential starts in May of this year versus May of last year (y/y) had its biggest subcategory jump in industrial (+645.6%), but institutional (+51.7%), commercial (+36.5%), and engineering (+34.1%) weren’t left standing on the sidelines.

As for May’s year-to-date gain of +28.8% for total nonresidential starts, it arose thanks to notable support from industrial (+266.2%) and engineering (+24.6%), while the pickups turned in by institutional (+9.0%) and commercial (+4.0%) were more muted.

There are two dominant subcategories of total nonresidential starts. When the volumes of roads/highways and schools/colleges are added together, they accounted for nearly one-third of total year-to-date nonresidential activity in May 2022 (i.e., shares of 17.8% and 14.3% respectively, summing to 32.1%).

The three percentage-change metrics for street starts in May 2022 were all positive: +10.7% m/m, +25.5% y/y and +32.8% YTD. The same was true for school starts: +4.6% m/m; +17.1% y/y; and +15.0% YTD. Delving deeper into educational work, the starts action was most evident in colleges and universities, +48.4% YTD and at the level of preschool and elementary, +22.0%.

Also important within the engineering subcategory (i.e., next in line behind ‘roads/highways) are water/sewage and bridge starts, and they have had fine year-to-date performances, +20.8% and +44.1% respectively.

For the three medical subcategories combined, i.e., hospital/clinic, nursing/assisted living, and miscellaneous medical, May 2022’s starts were a huge and positive reversal in course. They were still down YTD, although only by a small amount, -4.2%, but they were +191.6% mm and +217.0% y/y. Hospital/clinic starts alone have now improved to +6.5% YTD

Military starts in May were -52.1% m/m, but they were +58.6% y/y and +33.0% YTD. With the fighting in Ukraine at top of mind, and geopolitical tension in other hot spots around the world, spending on airfields (e.g., Tyndall AFB, Florida in May’s Top 10) and shipyards has been supercharged this year.

Among commercial starts year-to-date in May, the retail/shopping (+18.8%), amusement (+17.0%), government office (+12.5%), and miscellaneous (+118.0%) subcategories have been nicely upbeat. (Miscellaneous includes transportation terminals). Private office building (-10.2% YTD) and warehouse starts (-24.9% YTD) continue to struggle.

Table 3: Construction Starts in Some Additional Type of Structure Subcategories

Table 3

Upticks in 10 of 12 Trend Graphs

This Industry Snapshot sets out the history, from January 2005 to the present, of 12-month moving ConstructConnect starts averages for a dozen construction types of structures. The moving average (placed in the latest month) approach is designed to capture trends.

For 10 of the 12 curves, there’s an encouraging-to-see upwards hook at the end, for the most recent period. The most pronounced present upticks are for schools/colleges, hospitals/clinics, roads/highways, and bridges. There’s only one curve where the trend is still obviously down, private office buildings. Miscellaneous civil has been tending to move sideways of late.

JOLTS and the Unemployment Rate

According to the latest workforce report from the Bureau of Labor Statistics, there are 6.0 million unemployed individuals (SA) in the U.S. economy. The latest Job Openings and Labor Turnover Survey (JOLTS) report says there are 11.4 million (SA) vacant positions begging to be filled. Even allowing for mismatches between skills needed and those at hand, the stats indicate the tightness in the labor market, as reflected by the exceptionally low U rate, will be ongoing.

For ease of viewing, Graphs 5 and 6 show smoothed curves (i.e., based on three-month moving averages) for the JOLTS results, openings and hires, pertaining to construction.

Openings in construction have reached new peaks (both as a level and rate), but the hires figures (level and rate) remain only so-so responsive. The construction sector is in a contest with most other sectors throughout the economy to acquire workers amidst a severe shortage. For prospective hires, relative compensation increases are an important incentive. On that score, construction has been upping its game.

Graph 5: U.S. Construction Job Openings (from JOLTS Report)
(3-month Moving Averages placed in Latest Month)

Graph 5

Graph 6: U.S. Construction Job Hires (from JOLTS Report)
(3-month Moving Averages placed in Latest Month)

Graph 6

Construction Ups Its Game on Pay Front

Tables B-3 and B-8 of the monthly Employment Situation report, from the BLS, record average hourly and average weekly wages for industry sectors. B-3 is for all employees (i.e., including bosses) on nonfarm payrolls. B-8 is for production and nonsupervisory personnel only (i.e., it excludes bosses). For all jobs and construction, there are eight relevant percentage changes to consider.

From May 2022’s Table B-3 (including bosses), year-over-year all-jobs earnings were +5.2% hourly and +4.3% weekly. Construction workers, as a subset of all jobs, fared better, +5.6% both hourly and weekly. From Table B-8 for production and nonsupervisory workers (i.e., excluding bosses), the all-jobs compensation jumps were +6.5% hourly and +5.8% weekly. Construction workers made about the same gain hourly, +6.3%, but raced ahead weekly, +7.1%.

Graph 7: Average Hourly Earnings Y/Y - All Jobs & Construction

Graph 7

Graph 8: Average Weekly Earnings Y/Y - All Jobs & Construction

Graph 8

Table 4: 2022 YTD Ranking of Top 20 States by $ Volume of Nonresidential Construction Starts — ConstructConnect®

Table 4

Table 5: 2022 YTD Ranking of Top 20 States by $ Volume of Nonresidential Building Construction Starts — ConstructConnect®

Table 5

Table 6: 2022 YTD Ranking of Top 20 States by $ Volume of Heavy Engineering/Civil Construction Starts — ConstructConnect®

Table 6

Y/Y Bid Prices = Y/Y Material Costs

April’s y/y results for three building-related BLS Producer Price Index series were: (A) construction materials special index, +17.9% (significantly down from March’s +24.6%); (B) inputs to new construction index, excluding capital investment, labor, and imports, +20.9% (also down in a big way versus its previous month’s advance, +23.0%); and (C) final demand construction, designed to capture bid prices, +19.6% (a sizable jump from March’s +16.6%).

(A) comes from a data series with a long history, but it’s confined to a limited number of major construction materials. (B) has a shorter history, but it’s more comprehensive in its coverage, although it includes some items (e.g., transportation) that aren’t strictly materials.

What’s important to know, though, is that for the first time in nearly two years, the y/y change in the bid price index (+19.6%) has caught up with the average y/y change for the two material input cost indices ((17.9% + 20.9%)/2 = +19.4%). There were times around a year into the pandemic when there was an enormous gap and contractors were taking a beating.

Concerning the cost of some major construction material inputs, as revealed in the PPI data set published by the BLS, diesel fuel is +86.5% y/y; aluminum sheet and strip, +45.2%; asphalt, +39.9%; hot rolled steel bars, plates, and structural shapes, +38.3%; gypsum, +17.8%; copper wire and cable, +14.1%; ready-mix concrete, +8.8%; cement, +6.2%; and softwood lumber, -5.5%. There’s also an inputs to highways and streets PPI index and it’s +21.0% y/y.

The value of construction starts each month is derived from ConstructConnect’s database of all active construction projects in the United States. Missing project values are estimated with the help of RSMeans’ building cost models. ConstructConnect’s nonresidential construction starts series, because it is comprised of total-value estimates for individual projects, some of which are super-large, has a history of being more volatile than many other leading indicators for the economy.

May 2022’s ‘Grand Total’ Starts +16.0% YTD

ConstructConnect’s total residential starts in May 2022 were -12.9% m/m and -7.0% y/y, but +1.6% ytd. Multi-family starts in May were -47.2% m/m, -30.7% y/y and -1.6% YTD. Single-family starts were +3.0% m/m, +1.3% y/y and +2.8% YTD.

Including home building with all nonresidential categories, Grand Total starts in May 2022 were +6.7% m/m, +37.9% y/y, and +16.0% YTD.

ConstructConnect adopts a research-assigned start date. In concept, a start is equivalent to ground being broken for a project to proceed. If work is abandoned or rebid, the start date is revised to reflect the new information.

Non-Dollar Measures to Track Construction’s True Trajectory

Unprecedented levels of price inflation have caused nearly every dollar-denominated measure of the construction industry to appear to be moving strongly higher. Material price indices, which measure the change in construction input costs on an annualized basis have been near 20% since before the second half of 2021. This means that for a fixed quantity of physical structures being built, the dollar cost of the materials needed has increased by 20% over the last year. Tracking the dollar cost of this construction work across time, one might incorrectly think the construction market has grown 20%; however, the amount of physical structure demanded has remained stagnant.

For this reason, it is helpful to consider non-dollar metrics when monitoring the true, or real, health of the construction industry. Non-dollar measures that provide insights to the construction market include, but are not limited to, construction starts in square feet or the number of projects (or units, if talking about housing); inventory-to-sales ratios; and diffusion indexes for material input new orders and production. As these measures are not calculated in dollar terms they are less affected by the inflationary price pressures that have made virtually every dollar measure of the industry appear to be rocketing higher regardless of the real demand for structures in the market. - Michael Guckes, Senior Economist

Expansion Index Monitors Construction Prospects

The economy may be in recovery mode, but nonresidential work is usually a lagging player. Companies are hesitant to undertake capital spending until their personnel needs are rapidly expanding and their office square footage or plant footprints are straining capacity. Also, it helps if profits are abundant. (Today’s greater tendency to work from home has made office occupancy much more difficult to assess.)

Each month, ConstructConnect publishes information on upcoming construction projects at its Expansion Index.

The Expansion Index, for hundreds of cities in the United States and Canada, calculates the ratio, based on dollar volume, of projects in the planning stage, at present, divided by the comparable figure a year ago. The ratio moves above 1.0 when there is currently a larger dollar volume of construction prospects than there was last year at the same time. The ratio sinks below 1.0 when the opposite is the case. The results are set out in interactive maps for both countries.

Click here to download the Construction Industry Snapshot Package -  May 2022 PDF.

Click here for the Top 10 Project Starts in the U.S. - May 2022.

Click here for the Nonresidential Construction Starts Trend Graphs - May 2022.

Table 1: Value of United States Nonresidential Construction Starts May 2022 - ConstrucConnect

Table 1

*Includes transportation terminals and sports arenas.

Source: ConstructConnect Research Group and ConstructConnect.
Table: ConstructConnect.

Table 7: Value of United States Construction Starts
ConstructConnect Insight Version – May 2022
Arranged to match the alphabetical category drop-down menus in Insight

Table 7

Table 2 conforms to the type-of-structure ordering adopted by many firms and organizations in the industry. Specifically, it breaks nonresidential building into ICI work (i.e., industrial, commercial, and institutional), since each has its own set of economic and demographic drivers. Table 3 presents an alternative, perhaps more user-friendly and intuitive type-of-structure ordering that matches how the data appears in ConstructConnect Insight.

Source: ConstructConnect.
Table: ConstructConnect.

Table 9: U.S. YTD Regional Starts
Nonresidential Construction* — ConstructConnect

Table 9

Data Source and Table: ConstructConnect.

Table 9:Value of United States National Construction Starts – May 2022 – ConstructConnect
Billions of current $s, not seasonally adjusted (NSA)

Table 10

*Figures above are comprised of nonres building and engineering (i.e., residential is omitted).

Data Source and Table: ConstructConnect

 

About Alex Carrick, Chief Economist

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985.

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