Gilbane: Non-Residential Construction Expected to Rise

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In 2014, US construction showed a productive increase of 290,000 construction jobs, according to Gilbane Construction Co.’s Fall 2014/Winter 2015 Construction Economics report.

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Construction spending for 2014 finished the year 5.4% higher than 2013. All sectors contributed to growth. According to the report, most major nonresidential markets, including education, healthcare, commercial retail, office and manufacturing, along with residential construction will all realize much-needed spending increases in 2015. However, favorable growth conditions in the coming year will be met with an ongoing shortage of available skilled workers, driving up labor costs and impacting productivity.

“The most favorable, forward-looking conditions I’ve seen in years support my expectations for strong growth and profits across multiple sectors in 2015,” said the report’s author Ed Zarenski, a construction economics analyst and former Gilbane estimating executive with more than 40 years in the construction business.

Cash flow of new starts for nonresidential buildings indicate a 15% increase in the monthly rate of spending over the next 10 months.
A correlation between the Architectural Billings Index (ABI), Dodge Momentum Index (DMI) and new starts show cash flow has twice predicted the direction of nonresidential building spending over the last two years.

“Very active markets will drive escalation to climb more rapidly than we have seen in 6 years, Zarenski wrote. “That said, enthusiasm around these positive indicators must be tempered by the fact that an ongoing reduction in trained workers and management level personnel will continue to have a detrimental effect on cost, constraining the rate of expansion and forcing extended work schedules.”

According to the report, total spending across all types of construction grew 5.4% year over year from 2013 to 2014 and the industry’s unemployment rate is back up slightly at 8.3% after hitting a seven-year low in October 2014. Over the past year, jobs growth has averaged 24,000 per month – the fastest growth rate since 2005 – an important figure given the report’s assertion that continued growth in nonresidential buildings and residential construction into 2015 will lead to more significant labor demand.

Gilbane’s current forward look shows a rapid rise in 2015.  Jobs plus hours worked show that total labor effort is up 18% from its lowpoint. More than 40% of the total increased labor effort in the last f4years is due to added hours

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