CC: February 2021 Nonresidential Construction Starts -30% YTD Versus ‘Normal’
Latest Starts Expose January’s False Signal
ConstructConnect announced today that the latest month’s volume of construction starts, excluding residential work, was $18.5 billion, a decrease of -34.6% versus January 2021’s $28.3 billion and a similarly large contraction of -38.5% compared with February 2020’s $30.1 billion.
Year-to-date February 2021 nonresidential starts were -29.5%. Among structure types, the ytd weakness was entirely in nonresidential buildings (NRBs), -43.3%, as engineering stayed flat, -0.6%. Trailing 12-month (TTM) nonresidential starts (i.e., Mar 20-Feb 21/Mar 19-Feb 20) in the latest period were -30.4%. TTM ‘Grand Total’ starts, which include residential, were -20.0%.
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Since last year's starts through Q1 were pre-coronavirus and, therefore, 'normal,' comparisons of this year with last year will suffer until further along in 2021. But that doesn’t explain the shortfall relative to January (i.e., month to month). Apparently, while January’s nonresidential starts increase over December of +26.7% was nice for basking in at the time, it was a false signal.
The Starts Vs. PIP Relationship
‘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 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 usually making up two-fifths of the total and nonresidential, three-fifths (i.e., the bigger portion). Such was the case in January 2020, with residential holding a 41% share and nonresidential accounting for 59%.
January 2021 PIP statistics from the Census Bureau, however, deviated from the norm with the residential versus nonresidential shares-of-total approaching half each (47% next to 53% respectively). Total PIP spending in January 2021, seasonally adjusted and annualized (SAAR), was +5.8% y/y, entirely powered by residential, +21.1% y/y, with nonresidential languishing, -5.0%. PIP numbers, being more spread out, have smaller peak-over-trough percent-change amplitudes than the ‘starts’ series.
February a Hard Month for Construction Employment
February was a hard month for construction starts. It was also problematic for construction employment. The total number of individuals working in the sector declined by -61,000 jobs. The not seasonally adjusted (NSA) unemployment rate for onsite workers rose to 9.6% from 9.4% in January. In February of last year, construction unemployment was 5.5%.
The composition of February’s month-to-month jobs pullback in construction is set out in Graph 1. Using the category designations adopted by the Bureau of Labor Statistics (BLS), the overall drop of -61,000 jobs came approximately one-third in primary (i.e., general contractor) ‘engineering/civil’ work (-21,000) and two-thirds in nonresidential specialty trade contractor activity (-37,000). Interestingly, general contractor residential building made a +5,000-jobs gain that was almost exactly offset by a -6,000-jobs decline at the residential specialty trade contractor level.
U.S. construction’s year-over-year employment performance is now -4.4%, placing it almost in a tie with the manufacturing sector, at -4.0%. The economy-wide y/y jobs change is slightly worse, -6.6%.
In April of 2021, the year-to-year comparison of the total jobs count will become much perkier due to simple math. The denominator (a.k.a. the base level) in the percentage change calculation will fall significantly, as the period from February to April 2020 was when employment plummeted, due to the onset of the coronavirus contagion.
Presently, the jobs claw-back ratio (i.e., versus February-April 2020’s sizable shrinkage) for construction is 68.4%, better than the 53.8% for all jobs.
The latest year-over-year payroll adjustments in other corners of the economy with close ties to construction have been as follows: machinery and equipment rental and leasing, -12.6%; cement and concrete product manufacturing, -4.7%; oil and gas extraction, -3.9%; real estate, -1.9%; architectural and engineering services, -1.1%; and building materials and supplies dealers, +10.1%. Note that only the last category is showing a y/y increase.
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