Construction Job Openings Hit a High

One of the bits of economic data that gets less mainstream media attention is a survey call the Job Openings and Labor Turnover Survey (JOLTS). The JOLTS measures how many openings there are and why, creating a “quit” rate that measures what percentage of turnover is due to workers quitting their job. The correlation between a higher quit rate and a good economy is very strong. The quite rate is high right now, a condition that is exaggerated by the shrinking workforce demographics. In the construction industry it’s a perfect storm of higher demand for construction and fewer workers.

The AGC’s chief economist, Ken Simonson, commented on the release of the JOLTS data last Friday. Here are Ken’s comments:

Job openings in construction at the end of July totaled 373,000, an increase of 59,000 (19%) from the July 2018 total and the highest July total in the 19-year history of the series. This was the 14th consecutive month of record job openings for a given month. (The data are not seasonally adjusted. Because hiring and openings in construction vary considerably from month to month, comparing openings across months is not meaningful.)

The industry hired 442,000 employees in July, 8,000 (2%) fewer than the number hired in July 2018 but the second-highest July total since July 2008. While the dip in hiring may be an early sign of cooling demand, it may also be an indication that employers could not find enough suitable candidates—which is consistent with the jump in openings at the end of the month. Combined filled and unfilled positions (hires + openings) in July were a record for the month.

There were 167,000 layoffs and discharges in July, and increase of 29,000 (21%) from July 2018 but roughly in the middle of the range of July layoffs over the past seven years. Layoffs have exceeded or matched year-ago levels for nine consecutive months, a possible indication of a slowing market—or of the industry hiring more workers without acceptable skills. The rate of layoffs (layoffs as a % of employees) has remained near the low end of each month’s range over the past seven years, suggesting there is no strong trend toward cooling demand for construction.

The quit rate in July was 2.8 per 100 employees, slightly less than the July 2018 rate (3.1) but still the second-highest rate since 2008. This suggests employees are finding opportunities elsewhere. The data do not show if they quit for other construction jobs, jobs in other industries, or are leaving the workforce. But a high quit rate is indirect evidence of continuing opportunities for employment in construction.

In sum, I think the data are consistent with a continuing strong construction market and with the results of the 2019 Autodesk-AGC of America Workforce Survey, which found that 91% of the 1,935 respondents expect their firms will hire hourly craft personnel in the next 12 months (19% for expansion, 72% for replacement). That result was very similar to the 2018 survey and the January 2019 Sage-AGC Hiring and Business Outlook Survey.

Click here to see Ken’s slideshow on the construction market.

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Hiring Slows, Pittsburgh Construction Hums Along

This morning’s Employment Situation Summary for August showed that U.S. employers had added 130,000 workers to payrolls during the month, about what was expected. Unemployment remained at 3.7%. Observers are making headlines about the slowdown in hiring but it’s worth pointing out that a) the economists’ estimates of job growth are highly speculative and missing by 13% on a highly speculative estimate is hardly missing; and b) job growth that is still keeping pace with population growth at this stage of the economic cycle is solid growth.

Backing that last point up is the fact that the workforce is continuing to expand, even as unemployment remains unchanged. The number of workers grew by 30,000 in August, a sign that unemployed persons are continuing to come off the sidelines and find work. Also encouraging was the continued growth in wages, which topped $28/hour again for the second straight month.

The August report isn’t all sunshine, of course. The hiring paled in comparison to one year earlier, when 282,000 jobs were added. The lower number was also consistent with the 2019 trend, which is seeing an average of 158,000 jobs added monthly, compared to 170,000 in 2018 (and that after a 500,000 job downward revision to 2018). Moreover, the trend for the past six months is even slower, falling below 135,000 new jobs.

After the last two recessions, which were precipitated by catastrophic events, the U.S. economy seems to be on a course to slow down, rather than hit a wall. The current economic expansion started in March 2009. That’s a long time without a downturn. Trade wars are hurting U.S. corporations and farmers. Most of the rest of the G-20 nations are seeing flat economies, or even recessions, at the moment. It’s more likely than not that some of the jobs reports during the next six months will be even weaker than August’s. But maintaining the highest level of economic output in U.S. history isn’t the worst place to get stuck.

A look at the Builders Exchange his past week or so reveals that the bidding market is slowing but local project news reflects the healthy local economy. Franjo Construction started work on a $3-4 million expansion/renovation project at Innovative Carbide in North Huntingdon Township. Franjo also pulled a permit for a $3 million dispensary buildout for Solevo Wellness at the Streets at the Meadowlands in North Strabane. Massaro Corp. was awarded the $1.2 million WVUM Ruby Hospital radiology reading renovation. Waller Corp. started work on $5 million The Eagle Food & Beer Hall for Thunderdome Restaurant Group. Pitt is conducting final CM interviews with Massaro, Turner and Whiting-Turner for its $200 million central plant/Human Performance Center project. And the $200 million-plus, 600,000 square foot office tower proposed by JMC Holdings has gone back out for CM proposals. Last time, JMC worked with Turner, PJ Dick, Mascaro, and others, hiring Turner for preconstruction services.

Pittsburgh Builds Through the Worries

As the end of summer/back to school season brings a few weeks of slower bidding, construction continues at full pace. Few, if any, skilled workers are available. The Shell cracker is at peak employment of 5,000. There are cranes visible Downtown, Oakland, and most of the suburbs. Some of the recent contract awards/starts include: Mascaro Construction landing the 105,000 sq. ft., $9 million WeWork tenant improvement at 600 Grant Street; Al.  Neyer starting work on Crossgates’ 105,000 sq. ft. distribution center at Westgate Business Park in Big Beaver; and PJ Dick getting the green light for a $35 million project for the University of Pittsburgh, infilling behind Hillman Library off Forbes Avenue. AIMS Construction started construction on the $4 million UPMC CHildren’s Hospital pharmacy. Jendoco Construction started work on the $5.7 million Plaza at Hazelwood Green.

The Plaza at Hazelwood Green

At the Federal Reserve Bank’s Pittsburgh Business Advisory Committee meeting held August 28, the most recent survey of regional business owners found that the Pittsburgh economy was holding steady, despite worries about a recession in the coming year or two. Unlike respondents to business conditions surveys in other Federal Reserve Districts, Pittsburgh business owners reported that they continue to look to add staff over the coming months and see demand for products and services as the same or better than the past quarter.

RACP Grants Help Fill Pittsburgh’s Construction Pipeline

Let’s start with some project news first: There was a groundbreaking held last week for Light of Life’s $5 million new facility on the North Side. Sota Construction is the contractor. Sota is also the CM for the $3 million UPMC Graham Field project in Wilkinsburg. H H & H started construction on the new $3.7 million Sheetz at Bursca Retail in South Fayette. Massaro Corp. is starting construction on $5 million Best of the Batch facility and $7 million bathroom renovation program at Pitt-Johnstown. A. Martini & Co. was awarded the $2.8 million Ernst & Young renovation. Rycon Construction started work on the new 19,000 square foot office TI for Microsoft and a $2.2 million pharmacy renovationat AHN Wexford Wellness Pavilion. Developers EPC Real Estate Group announced the 251-unit, $50 million Waterfront Apartments. EPC has been working with Continental Building Co. on the project. Continental is also building a 23,000 square foot retail center in Uniontown, called Beesontown Shops, which Herky Pollock and partners are developing.

Pennsylvania’s DCED recently announced the projects which received grants under the Redevelopment Assistance Capital Program (RACP). RACP grants are given to help bridge the gap in funding a difficult project or help an owner that will struggle with funding of a major capital need that serves the public good. Often these are commercial real estate deals or even industrial projects where the justification is the job creation that follows. Some are just public benefit projects, like the awarding of $1 million to the URA to do traffic improvements at the Highmark Riverhounds Stadium at Station Square, part of an $8 million expansion the Riverhounds want to undertake. Some of the projects that received awards that might be of interest:

 

 

The awards included millions for projects that are already underway or received other grants in previous years. These include the Terminal Building in the Strip and Hazelwood Green, aomong others.  You can view the lists of submissions and awards.

Amazon At Last

July 30th brought the governor and a cast of dignitaries to Findlay Township to announce what had been whispered about for three years (see our July 2016 post), that Amazon was building a million-square-foot fulfillment center at Chapman Westport. Highwoods Construction will be bidding packages for the massive warehouse ASAP. Amazon’s commitment is just one of a number of large-scale industrial deals being done or pursued in Western PA. Komatsu is in the process of selecting a developer for its 250,000 square foot warehouse and office at Alta Vista Business Park in Washington County. Developers Suncap Properties and Al. Neyer have been competing.

The Federal Reserve Bank cut its Fed Funds rate .25% on July 31 at its Open Markets Committee meeting. The stock market plunged a bit after the announcement, likely in reaction to sentiment that the cut would be larger. Expect a rebound shortly. The Fed’s language suggests that another 25 basis point cut is likely later this year. For the U.S. economy, such stimulus is unnecessary at the moment, but economic data globally shows slowing and the bond markets have been trading at interest rates that are lower than the Fed Funds rate for longer maturity bonds. That’s what an inverted yield curve is and investors don’t like inverted yield curves. (You can read about the yield curve in the July/August BreakingGround.)

July’s building permits show that Hunter Buildings started work on a $6.5 million control room building for Eastman Chemical in Jefferson Hills. Rycon Construction pulled a permit for $2.2 million renovation of the AHN Wexford Medical Mall. Uhl Construction is working on a $1.6 million addition/renovation to Baierl Acura in Pine Township and $2.7 million project at Baierl Toyota in Mars, PA.

FMS Construction was awarded the $1.9 million restoration/conversion of the Lohr Building in Wilkinsburg. FMS is also doing general and mechanical/refrigeration construction on Giant Eagle’s $6 million Hempfield Square store renovation. Penn State selected PJ Dick for its $25 million Erie Hall replacement at the Behrend College. PJ Dick started work on the $17.5 million combined power/heating/cooling plant at the Wexford Medical Mall.

Affordable Housing and More

On Friday the PA Housing Finance Agency announced its grants for this 2019 cycle. PHFA grants are one of the effective vehicles for financing affordable housing throughout the state. The announcement coincided with two local project announcements that also focused on affordable housing.

After the wave of market rate private housing development peaked a few years ago, the City of Pittsburgh created regulations that are aimed at bringing affordable housing into the city along with the higher renting multi-family projects. Developers aren’t fans of the regulations, which tie public subsidy to inclusion of at least 10% of the units (on developments of 20 units or more) being reserved for rents that are affordable for people earning 50% of the median family income or less. Since the city is not budging on this, developers have begun to accommodate this requirement in their pro forma.

One of the two projects publicized last week, Arsenal 201, fits that description. Milhaus is proposing 343 units, along with a 454-car garage, and will have 10% that are affordable. The project is the second phase of the Arsenal development. This phase, which should top $60 million, needs to get through city approvals before starting work late this year or early 2020. Franjo Construction is doing preconstruction on the project now.

The second project getting ink on Friday was the Fifth & Dinwiddie Apartments, which is being developed by Derrick Tillman’s Bridging the Gap LLC, along with HB Development.  The $51 million project in the Hill District will bring 161 apartments and ground floor commercial space. Tillman says the project is applying for PHFA funding and is expected to start in about 18 months. Nello Construction is the general contractor.

PHFA’s awards were good news for Mistick Construction, which is the general contractor on half-dozen of the projects funded. Among them are the $13 million Larimer Phase 4 and the $10 million New Granada Square Apartments, which will bring another 40 apartments to the Hill District.

Rendering by PWWG Architects of the Granada Square Apartments.

In construction news unrelated to housing, the KML Carpenters selected Rycon Construction as contractor for its $9.5 million expansion. Jendoco Construction is taking bids on the $9.5 million Fifth & Neville Residences, which will be apartments for CMU students. Another CMU residence hall, the $32 million Fifth & Clyde, is being budgeted by Rycon Construction.

State Government Influencing Construction

As a buyer, the Commonwealth has been a minor force in the construction market for a decade. Over the past week, our state government has made a much bigger impact in other ways.

The legislature passed a 2019-2020 budget that has no relief for construction, but within the negotiations there was a break of sorts in the K-12 logjam. The results of a PlanCon task force report were accepted as the framework for a new PlanCon process. Sadly, this new framework did not coincide with a lifting of the moratorium on projects entering the PlanCon system (nor did it accompany funding for more projects). Getting agreement on what PlanCon will look like is a head start on the next wave of projects, which is building behind a decade of underinvestment.

Legislative action also occurred on PA’s Separations Act, although the action is likely to be moot. A full repeal of the Separations Act was passed in committee by a straight party 15-10 vote. Since Republicans control both houses, the repeal may pass; however, most legislators are aware that the full repeal will be vetoed by the governor and many understand that a full repeal was not the intent of the coalition lobbying for amending the Separations Act for years. A last-minute maneuver changed the proposed legislation from one that offers school districts choices of delivery methods to the full repeal. The last-minute measure was backed by AIA Pennsylvania, which had previously signaled alignment with the choice option. The full repeal legislation is probably dead on arrival, which means PA will remain the only state in the Union requiring separate prime contracts. Keep those claim forms handy!

Finally, PA’s attorney general, Josh Shapiro, may have catalyzed Pittsburgh’s two healthcare giants into an agreement that keeps the status quo for access. UPMC and Highmark announced last week that another 10-year agreement was reached. The upshot for construction seems to be limited. UPMC’s major capital plan is mostly aimed at replacing outdated facilities and supporting innovative new medicine (see Vision & Rehabilitation Hospital at UPMC Mercy). Its South Hills hospital is on hold, so the agreements with Jefferson and St. Clair probably make that permanent. Highmark/AHN has been investing significantly in facilities that were meant to capture the patients that would be without access to UPMC centers, so the construction is underway or completed on many of those. According to AHN officials, plans for further investment – like the $100 million Allegheny General Hospital Cancer Institute expansion and the Route 28 site – are being explored actively. It’s unlikely that the 10-year truce won’t have an impact on capital spending, but it doesn’t appear to be imminent.

Some project news updates:

The last two major K-12 projects of the bidding season were awarded. Franklin Regional re-bid its Sloan Elementary and new Grades 3-5 schools mid-June and awarded R. A. Glancy the general construction for the $14.6 million Sloan Elementary, and Walter Mucci Construction the general for the $26 million new 3-5 school. Mosites Construction won the $104 million Tuscarora Tunnel renovation on the PA Turnpike.

Volpatt Construction has started construction on the $4.5 million 6th floor Nursing Unit at Butler Hospital. Guardian Construction Management is underway on the $4 million renovation and addition to Grace Community Church in Cranberry Township. Turner Construction has been awarded the CM contract for the $8 million cooling tower upgrade at UPMC Shadyside Hospital, the enabling package prior to construction of a $50 million new central plant in mid-2020. PJ Dick is CM for a new Combined Cooling Heat and Power Plant for AHN in Wexford. Rycon Construction is renovating Ally Financial’s offices in Cranberry Township, a $2.5 million tenant improvement in Westinghouse Building 2000.