Marcum publishes commercial construction index for Q3
- November 3, 2020
- Posted by: Alan Hageman
- Category: News
New York City-based Marcum LLP’s Construction Services Group published its Marcum Commercial Construction Index for the third quarter of 2019, a report titled “The Good, The Bad, and The Ugly.” On “the good” side, Marcum’s third quarter index points to increased public construction spending, growing backlogs, falling input prices, the ongoing U.S. economic expansion, a strong construction labor market, and interest rate cuts as key factors sustaining the construction industry’s momentum. Highlights include:
- 1.5 percent increase in public construction spending in September and 6.6 percent increase year-over-year.
- Average backlog of 10.4 months in the infrastructure category, outpacing the commercial and heavy industrial categories.
- 0.6 percent decline in construction input prices in September and a 1.7 percent year-over-year decline.
- New jobs rate in 17 of the 20 largest Metropolitan Statistical Areas matching or exceeding the new jobs rate nationally.
- A third cut in interest rates by the Federal Reserve, sparking residential construction and fueling consumer spending.
Anirban Basu, chief construction economist at Marcum and Associated Builders and Contractors (ABC), and author of the report, stated, “Despite the lack of a coherent federal infrastructure strategy and the looming insolvency of the Highway Trust Fund, there is no recession in infrastructure spending in America. The five fastest expanding segments are all primarily publicly financed, while ten of the eleven slowest growing segments are primarily privately funded, including the commercial segment, which encompasses retail space.”
The five fastest growing construction segments in the third quarter included water supply (20.2 percent), sewage and waste disposal (18 percent), public safety (8.5 percent), highway and street (6.4 percent), and transportation (5 percent).
In contrast, the report stated “the bad” is several factors related to construction employment putting downward pressures on the industry. These include the continued lack of qualified construction workers to fill a historic high level of available construction jobs, which in turn is driving labor costs and producer prices higher. Key indicators in these areas include:
- 379,000 (4.8 percent) unfilled construction jobs in August, the highest level in 19 years.
- Construction producer prices up 5 percent in the Midwest, West and Northeast.
- 2 percent year-over-year job growth in October, the slowest gain since 2012.
- The quarter also a marked softening in private nonresidential construction, which declined 5.7 percent on an annualized basis.
Basu stated, “Demand for human capital remains high. According to ABC’s Confidence Indicator, more than 59 percent of surveyed contractors intend to increase staffing levels during the six-month period from the onset of 2019’s final quarter to the end of 2020’s first.”
According to Marcum’s report, “the ugly” is corporate, government and consumer debt levels have risen due to the low interest rate environment and continued economic confidence. But while businesses have begun to slow their spending, consumers haven’t, which will translate into slower job growth and higher consumer exposure, the report predicts.
“When the current administration in Washington, D.C. first entered the White House, uncertainty facing many businesses declined, regulations were withdrawn, corporate earnings surged, markets rose, employment growth accelerated, and consumer spending took off,” Basu stated. “Today, the situation is far different, with Americans struggling to understand the impact of trade disputes, hearing considerable chatter regarding recession, and looking ahead to next year’s national elections.”
Looking ahead, Basu said he sees a confused outlook for the economy. He noted a sputtering global economy and pending recession in the U.S. manufacturing sector, against a surging stock market, strong corporate earnings, hopes for a trade deal with China, and three Federal Reserve rate cuts.
“Given the susceptibility created by enormous levels of indebtedness and elevated asset prices, there is still a chance that the economy will enter recession late next year or in 2021, which would create a new breed of challenges for many contractors at some point in 2021-22,” Basu stated.
To view the Marcum Commercial Construction Index, visit www.marcumllp.com/construction.