Capitol Update 06/20/2022
Inflation hitting “every nook and cranny” of US economy
The Federal Reserve may feel increased pressure to raise interest rates after inflation increased 8.6% year over year in May, the biggest yearly increase since December 1981. What’s particularly concerning, says Bank of America executive Ethan Harris, is that the problem has affected “every nook and cranny of the economy.” Full Story: The Associated Press
Recession ‘not inevitable,’ Moody’s says
The U.S. economy is not headed toward recession even though the Federal Reserve, aiming to quash the highest inflation in 40 years, has raised the main interest rate at the fastest pace since the 1990s and signaled further half-percentage-point increases in July and August, according to Moody’s Analytics. “Recession is not inevitable today, nor is it the most likely path for the economy,” Moody’s Analytics Chief Economist Mark Zandi said, noting several bright spots including high corporate profits, strong bank balance sheets and abundant consumer savings. “Recession calls are sure to get louder as the Fed continues working to rein in inflation and politicians running in the midterms portray the economy’s struggles to their advantage,” Zandi wrote in a research note. “Ignoring the calls is not advisable, but given the economy’s strong fundamentals, buying into those calls is not recommended either.”
Recession watch: ABC economist sees ‘difficult times’ through 2025
Associated Builders and Contractors Chief Economist Anirban Basu said the Federal Reserve’s tightening policy to fight inflation will likely drive the economy into recession either later this year or at some point in 2023. In the association’s monthly release on construction material costs, Basu pointed to construction input prices that are up 21.4% from a year ago, while nonresidential construction input prices were 21.9% higher. Overall construction costs rose 2.3% in May compared to the previous month, according to an ABC report. Those cost increases largely stemmed from supply-side issues, such as the war in Ukraine, rising energy prices and manufacturing and distribution issues in the supply chain. “But what the Federal Reserve most directly affects is demand for goods and services, not supply,” Basu said in his statement.
The stock market has officially descended into bear territory, but it hasn’t taken nonresidential construction companies with it. That, observers say, is due to billions of dollars’ worth of backlogs reported by these companies due in part to the bipartisan infrastructure law, which will continue to inject funding for the next five years. Full Story: Construction Dive
Record-breaking inflation and a war for talent rage on. The economy pressures builders to keep wages high, while they must compete with other companies and industries stealing workers. Firms face pressure from workers to increase wages to compete and compensate for inflation Nearly half of employers don’t take inflation into budgeting for salaries, Forbes reported. Less than a quarter of U.S. companies have made changes to pay due to inflation, but 42% of companies said workers had asked them for help with rising costs.Nevertheless, the transitory nature of inflation poses a tough problem for employers: Offering cost-of-living raises means pay increases become permanent, even if inflation recedes.In Omaha, Nebraska, Chris Hawkins did the math. The CEO and president of Hawkins Construction and fourth-generation leader of the family business — which largely performs heavy civil construction and road building — discovered that, with usual raises, his hourly tradesworker employees would come up about 3% short of competing with inflation. The annual rate of inflation reached 8.3% in April.With that in mind, Hawkins said, he dipped into company profits, and each of the contractor’s roughly 340 hourly workers will receive two $1,000 payments to help compete with rising costs of necessities. The first check arrived in April, and workers will receive the second in August.
The Biden administration is aiming to have 500,000 new charging stations for electric vehicles in operation across the country by 2030 and is proposing standards and requirements to try to make that goal a reality. The rules aim at equal accessibility for everyone, with government-funded stations no more than 50 miles apart and available in every type of community. Full Story: Fox Business/Reuters
Architects, builders want to collaborate, but don’t see eye to eye on what that means
Contractors and architects agree they want to collaborate more, though too often clash on issues such as material substitutions, according to a new report released by the American Institute of Architects. Less than a fifth of architects believe contractors propose material substitutions or other changes to serve the client’s best interests. Contractors indicate they best serve clients through ensuring projects stay within their schedule and budget, the report found. About half of architects who responded to AIA’s survey believe the architect has the majority of the responsibility to make decisions in the best interest of the client. By contrast, 88% of contractors said they share the responsibility equally.
The squeeze on construction materials should ease a bit after Amazon announced in May that it was scaling back its warehouse construction, observers say. Lead times should be reduced, and Amazon’s decision “is certainly going to put priorities in different buckets other than just Amazon’s, because everybody was fighting for that bucket,” says Charles Byerly, CEO Of Westport Properties in Irvine, Calif. Full Story: Construction Dive (6/13)
A total of $6.5 billion is available under the Water Infrastructure Finance and Innovation Act program, the Environmental Protection Agency announced. The EPA says funds will be distributed according to criteria based on investment in economically challenged communities, the need to replace lead service lines, addressing PFAS and other contaminants, and support for water innovation and resilience. Full Story: Environmental Protection Agency (6/13)
A total of $12.5 billion in discretionary grants for bridge projects spread over five years is up for bid from the Transportation Department. This fiscal year total available through the Federal Highway Administration is $2.36 billion, with priority applied to “existing bridges most in need of near-term repairs or replacement,” said Transportation Secretary Pete Buttigieg. Full Story: Engineering News-Record (tiered subscription model)
High pay attracts workers, but construction’s employment gap widens
Rising hourly wages brought more workers to construction in May, but the industry still posted a record number of job openings to start the month, according to analysis by the Associated General Contractors of America. About 36,000 new employees donned hard hats and reported for work on jobsites in May, according to BLS data, but that didn’t come close to filling the 494,000 construction job openings at the end of April, a 40% increase from the number of openings in April 2021. The increase in openings represented the largest total since recording of it began in 2000, according to AGC Chief Economist Ken Simonson.
In May, the Consumer Price Index for All Urban Consumers rose 1.0 percent, seasonally adjusted, and rose 8.6 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.6 percent in May (SA); up 6.0 percent over the year (NSA).
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In May, unemployment rates were lower in 16 states and stable in 34 states and the District of Columbia. Nonfarm payroll employment increased in 7 states, decreased in 3 states, and was essentially unchanged in 40 states and the District.
The Producer Price Index for final demand increased 0.8 percent in May. Prices for final demand goods advanced 1.4 percent, and the index for final demand services rose 0.4 percent. Final demand prices moved up 10.8 percent for the 12 months ended in May.
Construction Stormwater General Permit Update – July 19, 2022 Board Meeting Postponed
The previously noticed July 19, 2022, State Water Resources Control Board meeting to consider the adoption of the statewide NPDES Construction Stormwater General Permit reissuance has been postponed until September 2022. The revised public notice is available in the “Announcements” section of the Construction Stormwater General Permit reissuance web page.
The Federal Reserve’s 0.75 percentage point interest-rate hike will have a “relatively insensitive” effect on many types of infrastructure projects, including highways, said Ken Simonson, chief economist at the Associated General Contractors of America. However, it could lead to higher borrowing costs that put a damper on real estate projects, Simonson said. Full Story: The Wall Street Journal
Transportation in Los Angeles will undergo a transformation if preparation goes as planned for the 2028 Olympics, writes Rachel Uranga. But that will require billions of dollars in investment to provide the envisioned network of public transit and bike and foot paths. Full Story: Los Angeles Times (tiered subscription model)
The Interior Department has approved two wind, solar and geothermal projects for construction on public lands in California. The Arica and Victory Pass projects near Desert Center in eastern Riverside County are expected to generate at least 25 gigawatts of clean power when they are up and running by 2025. Full Story: Department of the Interior
Flatiron Construction began work this month on a $156 million grade-separation project that will address the worst at-grade rail and road crossing in California. The intersection in Santa Fe Springs stalls road traffic an estimated 21 hours a week, but the project will introduce a bridge and connector roads to avert such snarls when it’s expected to be completed in mid-2025. Full Story: Los Angeles Business Journal (free registration)
Thirteen rental car tenants are now working on their installations in the new car-rental return building at Los Angeles International Airport as work on a consolidated car rental facility advances. When completed next summer, the facility, which is being built by PCL Construction Services, will be the largest of its kind in the world. Full Story: Los Angeles Business Journal (free registration)