Construction Industry Expansion Softens in Early 2016, Reports Marcum Commercial Construction Index
New York City, NY – The second quarter of 2016 saw a continued softening in nonresidential construction spending, according to the latest construction index from Marcum LLP, released today. The quarterly Marcum Commercial Construction Index is produced by Marcum’s national Construction Services Practice group.
Marcum reports that June nonresidential construction expenditures shrank 0.6 percent to $682 billion on a seasonally adjusted, annualized basis. It was the first period of negative year-over-year growth since July 2013. Sector employment also suffered, with 27,000 positions lost overall during the quarter ended June 30.
Marcum’s chief construction economist, Anirban Basu, who authored the report, attributes the slide in spending to several factors, including savings from lower commodities prices that are being passed along to developers, resulting in lower construction costs. Stagnation in public investment, particularly in the highway and street, educational, and sewage and waste disposal categories, also impacted nonresidential spending, which fell 5.9 percent in June, year-over-year. Additionally, weakness in the global economy produced a double-digit decline in manufacturing-related construction as U.S. exports continued to decline. Low oil and natural gas prices were another influence on the construction industry in general, with particular impact in geographies such as Dallas, Oklahoma City, Willison and Houston, where employment construction had previously sustained a prolonged surge. Technology-intensive markets including Boston, San Francisco and Seattle were the beneficiaries of construction employment growth as industry activity in the industrial categories slowed.
Marcum noted an improvement in July data, following the slow-down of the year’s first six months. 11,500 jobs were added in the commercial construction sector during the month, and heavy and civil engineering construction gained 1,900 jobs after losing ground steadily from January to June. The unemployment rate for the nonresidential construction sector for the month improved to 4.5 percent.
“It should be concerning to construction industry leaders that while sector employment declined during a recent three-month stretch, industry unemployment also fell,” Mr. Basu wrote. “The implication is that fewer people are making themselves available for construction work. Presuming the construction recovery continues, this implies sharper increases in wages and benefits going forward, which, all things being equally, will squeeze industry profit margins.”
For the complete Marcum Commercial Construction Index for the Second Quarter of 2016, including details on nonresidential construction spending since June 2014, year-over-year construction employment growth in the 20 largest U.S. metropolitan areas, and monthly and annual analysis of second quarter spending in the 16 nonresidential construction subsectors, visit Commercial Construction Index.
Marcum LLP’s Construction Industry Practice group provides strategic and timely accounting, audit, and consulting and taxation services to construction clients ranging from start-ups to multi-billion-dollar enterprises. The Firm’s technical experts serve on many industry boards and committees and regularly contribute to construction conferences and publications.
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