One of the concepts that the Federal Reserve’s FOMC dicussed in its March meeting was that of “soft data” compared to “hard data” in assessing the economy. With inflation rising again and the labor markets tight, the Fed will raise rates slightly at least three time this year, but the Committee made interesting observations about the actual state of the economy versus the perception.
Soft data is the more frequently-updated economic information that is the result of surveys, like consumer and business confidence or business hiring plans. The surveys of this kind – like the University of Michigan’s Consumer Confidence Index – have soared since the election on the expectation that a Trump Administration would lower taxes and regulatory burdens. Thus far, the administration has struggled but consumers and business owners have reflected little of this in their responses.
At the same time, hard data – like government employment or GDP estimates – is showing that the economy is performing pretty much like it has since the Obama Administration and Congress figured out how to play nicely after the 2013 government shutdown debacle. A look at the figure below shows how this spread between data and emotion looks.
Bidding/contracting news is limited. One K-12 project of note is out to bid, the $14 million Todd Lane Elementary School addition/renovation in Center Valley School District. Massaro has the $2.6 million Johnstown Flood Museum project out to bid, due April 26. Mistick Construction is taking bids on the $30 million Eighth & Penn apartments and Elford Inc. has started construction on the $40 million, 274-unit Village at Cranberry Woods apartments. In Erie, E. E. Austin has been selected as CM for the $110 million Allegheny Health Network renovation of St. Vincent Hospital.
As chaotic as US politics is right now, the economy continues to hum along. Today’s jobs report outperformed the expectations of analysts, with 227,000 new jobs added to payrolls last month. That continued expansion is in contrast to the story in Pittsburgh, which last year added only 4,400 jobs. At Thursday’s Viewpoint presentation – one of the best forecasting events for commercial real estate – Integra Realty Resources’ President Paul Griffith explained how the healthy job growth early in the business cycle has faded to a flat line since 2013. Pittsburgh’s strong economic sectors have been offset by declining employment in energy and manufacturing.
In project news, Volpatt Construction was awarded the $2.4 million Nursing Unit 5A renovation at St. Clair Hospital. Developer Alphabet City selected Brubach Construction to build its $7 million, 60,000 sq. ft. East Liberty Centre office building. Campus Advantage interviewed Turner, PJ Dick, Continental and Rycon for its $40 million apartment on Forbes Avenue in Oakland. Rycon Construction is underway on the $27 million, 172-unit Emerald on Centre apartments in Shadyside. Sota Construction is taking bids from subcontractors on the renovation of the Allequippa Place apartments and construction of the 49-unit new Wadsworth Street Apartments, roughly $8 million in total construction. And McCaffrey Interests is taking RFP’s next week on the $66 million Terminal Building redevelopment in the Strip District.
The prospect of lower corporate taxes and less regulation has business swooning at the start of 2017. One of the measures of small business confidence – the National Federation of Independent Businesses index – soared more than 7 points in December to 105.8. That’s the highest since the end of 2004, when the economy took off after an uneven recovery from the 2001 recession.
PNC Senior Vice President and Chief Economist Stu Hoffman gave an equally confident forecast for 2017 (and 2018 for that matter) when he addressed a crowd of NAIOP Pittsburgh/BOMA members this morning at the William Penn. Hoffman liked the chances of tax cuts, stimulus spending and less regulation during this year and forecast that GDP would respond by growing closer to three percent. Hoffman saw that happening in late 2017 and into 2018 – maybe even a quarter or so of 4% growth – assuming the stimulating measures are enacted during the first months of the Trump Administration. He also warned that overplaying trade sanctions could blunt the growth from the stimulus.
BOMA President Tony Young from the Carnegie Museums (left) with PNC’s Stu Hoffman and NAIOP President Dave Weisberg from BNY Mellon.
Confidence in the construction industry has been boosted by the strong year-end activity. In addition, there are a half-dozen or so major projects that are in the process of moving forward in 2017, although few will start construction until afterwards.
UPMC announced its big investment in Hamot in Erie but the healthcare system is also on the verge of an announcement about its direction in the South Hills, where a new hospital or multiple mini-hospitals may be built to serve its patients. Another major South Hills hospital project, the St. Clair Hospital expansion, is getting a redesign but should be put before selected CM’s for proposals before spring. Reports are that the Dick’s HQ expansion is back on the front burner. And Pitt is moving forward with early programming for a new building at the Syria Mosque site that is in the 350,000 sq. ft. range.
A couple of $30 million-plus projects that have been kicking around for a while appear to be heading for a competitive hard bid. Oxford Development is rumored to be close to a major tenant announcement for its Riverfront West project at 3 Crossings. In Oakland, Campus Advantage will be bidding its 300,000 sq. ft. apartment project on Forbes Avenue.
Murland Associates selected Mascaro Construction as contractor for its proposed 97,000 sq. ft., $15-18 million office at 3422 Forbes Avenue. Landau Building Co. was selected as contractor for the $4.5 million Mars Library. Pitt awarded the $3.4 million Barco Law Library project to TEDCO Construction. Chapman Corp. is the apparent successful bidder on the mechanical piece of three major compressor stations for Energy Transfer Partners, in Clarington OH, Majorsville PA and Burgettstown PA.
One of the best programs of the year is the Urban Land Institute’s “Emerging Trends in Real Estate.” The 2017 version of this was held this morning at the Rivers Club. There was a great panel, with Maureen McAvey from McAvey consulting in Washington DC as the keynote speaker. Her presentation centered on the theme that commercial real estate was in a good place but probably not getting much better for this cycle. In fact, she predicted that the good run probably had another 12-18 months to go before a cyclical slowdown. She called it the “kinder, gentler real estate cycle,” which is more good news. ULI makes the “Emerging Trends” document available at their site.
Flemming Bjoernslev – former CEO of Lanxess – address the crowd at ULI’s Emerging Trends in Real Estate conference at the Rivers Club.
The rest of the program focused on the Pittsburgh market and the changes occurring. I found the best points were made by Claire Hosteny, one of the partners in East End Development Partners (which brought us the Ace Hotel). Claire spoke about the residential conditions and emphasized that Pittsburgh was beginning to push up against the boundaries of our affordability limits, emphasizing that affordability was one of the region’s biggest selling points. She really hit the mark when pointing out that the biggest threat to continued growth of city living was the inadequate public education system. She urged the crowd to consider investment in the Pittsburgh Public Schools or charter schools as a top priority.
One of the drivers of Pittsburgh’s resurgence has been the 25-35 year-olds returning to the city because of great jobs. Reluctant (or unable) to buy, this group of Pittsburghers have been paying the rents that we middle-agers think are outrageous and driving the apartment market. As this age group does marry and reproduce, the same factor will drive where they live as drives all American home buyers: where are the schools we want? If the city schools don’t pass muster for the Millennials, they will head to the suburbs just like their parents. There is a home buying/building boom in the near future. How good Pittsburgh Public Schools are perceived to be will determine if that boom includes Pittsburgh proper.
A couple of project follow-ups: CCAC put a design RFP out for its 150-bed student housing project at the Boyce campus. The RFP included (sort of) the option to add development and finance to the package. Pitt opened bids last week on its Barco Law Library project. Rycon was low at $3,049,000. TEDCO was second at $3.1 million but could become the low bidder if Pitt were to take 3 or more of the alternates. Massaro CM Services will be releasing the $5 million North Allegheny Intermediate School renovations on Dec. 12 with bids due on Jan. 11.
Setting aside the crazy campaign and surprising results of Tuesday’s elections to get back to business, the Bureau of Labor Statistics announced October’s employment gains on Nov. 4 (and the results were surprising there too). Employers created 161,000 new jobs in October. BLS also revised its estimates for September and August upward, to 191,000 and 176,000 respectively. The gains were in financial services and the losses in manufacturing.
In local project news, Lane Construction was the winner of the $117.8 million I-70 section that bid to PennDOT last week. Independence Excavation was low at $90.5 million on the Southern Beltway sec. 55A1 that bid Nov. 9. Reynolds Construction Mgt. was chosen for the Indiana Regional Medical Center’s $6 million behavioral care project. Allegheny Health Network selected Turner Construction for the $3.5 million acute rehabilitation job at Allegheny Valley Hospital in Natrona Heights and Landau for its $8 million outpatient services clinic at Waterworks Mall. Mascaro is reported to be the winner of the $60 million Uptown District Energy Facility for NRG, although that has not been confirmed.
After reducing capital spending on construction somewhat during the past two years, UPMC is revving back up. This week AIM Construction was selected to do the construction management for the $30 million Presbyterian Hospital HVI project. UPMC also awarded a contract to Massaro Corp. for the $5 million renovation to one patient floor, 5G at Presbyterian Hospital. Turner Construction was awarded a $2.3 million contract for renovations to the HVI unit at UPMC Passavant. Another renovation project, the $6.5 million Hill Building went out to bid to Massaro, Mascaro, Landau, Rycon, Gilbane, AIM, & Turner.
In other hospital construction news, Wheeling Hospital is working through value engineering with Landau and Volpatt on its $20 million-plus continuing care unit.
Today’s jobs report suggests that the US economy continues to expand. Employers added 156,000 jobs in September. The Bureau of Labor Statistics revised the July numbers downward to 252,000 and the August numbers upward to 167,000. More important than the headline numbers is the improvements in the underlying workforce. Wages rose 2.6% year-over-year; hours worked were up again; and 444,000 people were added to the labor pool, which pushed unemployment back up to 5%. Since last September, over three million more people have joined the workforce. That’s nearly triple the 1.2 million who were added through immigration, although still not enough to offset retirements.
MBA President Steve Massaro (4th from left) addresses the crowd gathered to celebrate the 10th anniversary of BreakingGround on Oct. 6.
This morning’s report from the Bureau of Labor Statistics (BLS) showed employers added 255,000 jobs in June, growth that was almost 50% higher than expected. Adding to the good news was an upward revision of the June growth to 292,000 and May’s to 24,000 from 11,000. BLS also reported that 400,000 more people joined the workforce, which left the unemployment rate at 4.9%. Wages maintained the 2.6% growth rate year-over-year.
BAsed on the July estimate, the U.S. economy added an average of 182,000 jobs per month through the first seven months of 2016 and 202,000 monthly since July 2015.
The growth of jobs doesn’t immediately jibe with the fact that GDP growth seems stuck below 2% over the past six to nine months; however, when you consider that productivity growth has actually fallen during that time, the added payrolls make sense. During recessions people work more hours for the same pay, either out of fear for their jobs or because their employer cuts staff. Productivity drops as the economy recovers, especially as oppoprtunities to leave overworked positions arise.
All this is good news if you are an employee, especially when you consider that wages are probably still on a rising trajectory. The dark cloud in that silver lining is the reality that upward wage pressure – espeially when significant numbers of unemployed are rejoining the workforce – signals the end of slack in the economy. Recessions don’t necessarily follow these kinds of developments but a recovery like this one is getting long in the tooth.
Construction news is slow in August and this year is no exception. Nonresidential starts topped $2.8 billion through July and the forecast of $3.4 billion for the full year looks conservative at this point. Westmoreland Community College selected Turner Construction as CM-Agent for its $42 million campus expansion program. In a surprising move, Carnegie Mellon pulled the plug – at least for now – on its 425,000 square foot Gateway Project.