Construction Report

July 2013

Non-residential Construction Spending

SA, $Billions

Modest Rise in Building Activity

Summary
The most recent economic data suggests that private non-residential construction activity will experience a modest increase during the remainder of the year. The overall cost of construction increased by +2.5% in July 2013 relative to one year ago. The level of commercial real estate construction has trended up over the past 12 months. The cost of petroleum has been rising as recent turmoil in Egypt is reverberating in the oil markets.

$320 $310 $300 $290

$285 $280 $275 $270 $265

$280 $270 $260

Jul-12 Aug-12 Sep-12 Nov-12 Dec-12 Mar-13 Jun-12 Oct-12 Jan-13 May-12 May-13 Feb-13 Apr-13

$260 $255 $250

Private Non-residential

Public Non-residential

Source: U.S. Census Bureau

ENR Cost Indexes

July 2013, % Chg.

Analysis
Mo/Mo Yr/Yr +2.5% +2.6% +1.9% +1.9% +1.8% Unlike the residential sector, which nally found its growth spurt, private non-residential construction spending has gained only a little momentum in the 1st half of 2013 registering an average growth rate of 0.4% per month. The good news is that there have been ashes of increased spending for certain sectors. For instance in May 2013, spending was up for hotels (25%), ofce properties (10%) and retail structures (5%) when compared to the same period a year ago. However, the improvements still are not widespread regionally. The uptick in construction activity continues to be concentrated in prime locations like Boston-Cambridge, Houston, Dallas and Phoenix though there is some evidence of speculative construction beginning to pop up in select areas. For example, since the recession, markets such as Minneapolis and Louisville have experienced rent growth and signicant declines in vacancy for industrial properties, which lured some developers off the sidelines. Conversely, public non-residential construction has been plagued by sequestration. From January to May 2013 federal and state construction outlays declined 17.0% and 3.7%, respectively, compared to the same period a year ago. This trend is not expected to change any time soon. Construction costs are rising. Prices for the bulk of raw materials such as gypsum (17.2%), lumber (10.3%), glass (3.3%) and concrete products (1.9%) all increased over the past 12 months, while iron/ steel (-7.2%) and copper (-1.1%) posted price declines. According to Engineering News Record (ENR), the overall cost of construction grew by +2.5% in July relative to the year ago. Meanwhile, the cost of petroleum has been rising as recent turmoil in Egypt is reverberating in the oil markets. Petroleum costs soared in June, posting a 4.5% gain from the prior month. Construction industry labor costs have also been trending up. Average earnings registered at $25.92/hour in June a 1.7% increase from last year. The Architecture Billings Index (ABI) that leads construction activity by approximately 3-4 quarters rose 4.3 points from its April reading to 52.9 in May 2013. A reading above a 50-level threshold indicates construction activity is likely to rise. Incremental improvement in construction will continue for residential and institutional projects, while activity for commercial projects will be minimal in most markets. On the contrary, ongoing sequestration cuts will remain a hindrance to public non-residential construction spending and activity into 2014.
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Construction Common Labor Building Skilled Labor Materials

Source: ENR

+0.1% +0.2% -0.1% 0.0% -0.3%

Average Hourly Earnings

Yr/Yr % Chg.
2.5% 2.2% 2.0% 1.7% 1.5% 1.0% 0.5% 0.0%
Jun 2011 Jun 2012 Dec 2011 Dec 2012 Feb 2012 Aug 2011 Aug 2012 Feb 2013 Jun 2013 Apr 2011 Oct 2011 Oct 2012 Apr 2012 Apr 2013

Avg. Hrly Earnings: Construction

Avg. Hrly Earnings: Total Private

Source: BLS

Construction Report
July 2013
Construction Spending
$Billions, SA

Construction Costs
Producer Price Index
NSA, % Chg.

Apr-13 0.2% -5.9% -0.6% 0.2% 2.6% -5.4% -0.4%

May-13 -0.5% -4.9% 1.6% 1.1% -3.8% -0.2% -2.2%

Jun-13 0.4% 0.9% 0.2% -0.5% -4.4% 4.5% -0.9%

Yr/Yr 2.0% -1.1% 3.3% 17.2% 10.3% 1.7% -7.2% Ofce Commercial Total Construction Total Private Residential Lodging

Mar-13 $869 $604 $319 $12 $30 $44 $48

Apr-13 $870 $606 $319 $13 $28 $45 $48

May-13 $875 $605 $322 $13 $28 $44 $44

Concrete Products Copper Glass Gypsum Lumber Petroleum* Iron & Steel

Labor Costs
Avg Hourly Earnings Avg Weekly Hours
* seasonally adjusted Source: BLS

$26.04 38.7

$25.94 39.2

$25.92 39.5

1.7% -

Manufacturing
Source: U.S. Census Bureau

Select Market Statistics:

Construction Jobs
Market Atlanta Baltimore* Boston-Cambridge Chicago Denver* Houston Indianapolis LA/Long Beach/Santa Ana Q2 13/ Q2 12 3,650 5,970 5,790 -3,530 5,450 10,500 1,150 14,090 2,220 9,030 9,850 -1,880 0 7,330 3,690 680 3,340 -1,830 Yr/Yr % Chg 4.2% 8.7% 7.0% -2.4% 7.5% 5.9% 2.8% 8.0% 9.5% 3.0% 11.4% -5.0% 0.0% 8.5% 10.6% 0.8% 6.3% -1.6%

Construction Wages
Avg Weekly Q4 12 $1,385 $1,406 $1,699 $1,153 $1,458 $1,636 $1,407 $1,365 $1,203 $1,407 $1,390 $1,179 $1,256 $1,528 $1,637 $1,265 $1,054 $1,208 Yr/Yr % Chg 5.4% 5.9% 6.3% 10.5% 5.4% 6.9% 6.7% -1.3% 10.8% -5.7% 1.0% 3.5% 6.6% 3.9% -4.4% -3.2%

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* Employment data includes mining and lodging Source: BLS