Capitol Update 10/30/2023
U.S. economy grows at blockbuster pace in third quarter
The U.S. economy grew by an annual rate of 4.9 percent in the third quarter, the strongest pace since 2021, as spending — by families, businesses and the government — accelerated, even in the face of fast-rising borrowing costs. Abha Bhattarai in the Washington Post$ Lydia DePillis in the New York Times$ — 10/26/23
Resilient consumer spending has prompted economists to boost growth predictions for the economy through early 2024. A Bloomberg survey in October shows economists expect 0.7% growth in the fourth quarter, up from a September prediction of 0.5% growth, with projected odds of a recession also lowered. Full Story: Bloomberg
In September, unemployment rates were higher in 16 states and stable in 34 states and the District of Columbia. Nonfarm payroll employment increased in 6 states and was essentially unchanged in 44 states and the District.
After a summer of stabilization, the Architecture Billings Index from the American Institute of Architects has turned downward for the second straight month. The score for September, 44.8, is the lowest since the depths of the pandemic in December 2020, reflecting “hesitance among clients to commit to new projects with a slump in newly signed design contracts,” AIA Chief Economist Kermit Baker says. Full Story: Archinect
September construction starts were 6% below August starts, according to Dodge Construction Network. Starts declined 3% in the first nine months of 2023 compared with the first nine months of 2022. “Over the last 12 months, construction starts have essentially froze as rates increased and credit tightened,” Chief Economist Richard Branch says. “The industry needs further adjusting as rates are expected to stay higher for longer, along with the potential for higher energy costs and continued political uncertainty.” Full Story: Dodge Data & Analytics
Contractors should prepare 2024 cash flow with an understanding that even if inflation settles to 2%, there is no guarantee materials prices will return to pre-pandemic levels, writes Gary Bartecki of GB Financial Services. “No matter how you look at this, it is in your best interest to defer additional debt and fixed cost obligations at this time,” Bartecki writes. Full Story: For Construction Pros
Federal Reserve Officials Signal A Pause In Rate Hikes
Reuters reports Federal Reserve officials “are signaling a pause in hiking interest rates for another couple months as they wait for a resolution of mixed signals: strong economic data, signs of progress on still-stubbornly high inflation, and the potential for the recent rise in longer-term borrowing costs to do some of their work for them.” Fed Governor Christopher Waller told the European Economics & Financial Center Seminar in London, “I believe we can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate.” If the economy softens, he said, “we can hold the policy rate steady.” If “it continues to show strength or inflation stabilizes or reaccelerates,” he said, “more policy tightening is likely needed despite the recent run-up in longer-term rates.” New York Fed President John Williams “offered a similar perspective” at “a separate event at Queens College.” The Wall Street Journal reports that in an interview Tuesday, Philadelphia Fed President Patrick Harker said he thinks the Fed can wait until early next year to decide whether rate increases have done enough to address inflation. Harker said, “This is a time where we just sit for a little bit. It may be for an extended period; it may not. But let’s see how things evolve over the next few months.”
The New York Times reports newly released findings from Federal Reserve Survey of Consumer Finances show American households “saw the largest jump in their wealth on record between 2019 and 2022…as rising stock indexes, climbing home prices and repeated rounds of government stimulus left people’s finances healthier.” According to the data, median net worth “climbed 37 percent over those three years after adjusting for inflation…the biggest jump in records stretching back to 1989.” The Wall Street Journal says that, according Numerator chief economist Leo Feler, older Americans, in particular, benefited from higher home values and stock-market gains. However, other groups also made steps forward as well. For example, Black families saw the largest gains in median net worth, with their wealth rising 60% from 2019 to 2022. The Journal says the economic gains for Black Americans contrast with their long, slow recovery from the 2007-09 recession. At the same time however, Reuters says the survey also exposed “stark contrasts.” For example, despite the increase in their net worth, Black households “saw their median income fall by 2% – versus a 3% rise for all families.” Additionally, “Black households had the lowest median net worth at about $45,000, 27% below the next lowest, Hispanics, at about $62,000. By contrast, median household net worth for white families was $285,000 and for Asians – measured on their own for the first time in this year’s survey – was $536,000.”
In a construction industry survey by FMI, 45% of respondents reported seeing a decline in productivity on job sites in 2022, which cost the industry as much as $40 billion. Managers could have saved $25 billion by adopting lean construction, the survey shows. Full Story: Construction Dive
The US has made the largest federal investment in grid infrastructure after allocating $3.5 billion toward 58 projects nationwide. The investment could reach $8 billion after factoring in contributions from the private sector, Energy Secretary Jennifer Granholm says. Full Story: The Associated Press
Consumer Spending Strong In September
The AP reports the Commerce Department said on Tuesday that retail sales were up 0.7% in September, “more than twice what economists had expected, and close to a revised 0.8% bump in August, the Commerce Department reported Tuesday.” The AP notes that retails sales aren’t adjusted for the cost of inflation. The Wall Street Journal says that stronger consumer spending, if it continues, would “complicate deliberations” at the next Fed meeting where officials are expected to decide if they are done raising rates. Reuters reports, “Despite the show of resilience, headwinds are mounting for consumers, many of whom rely on debt to fund purchases. Higher borrowing costs as the U.S. central bank tackles inflation have pushed credit card delinquencies to an 11-year high. Millions of Americans resumed payments on student loans in October, which economists estimated was equal to roughly $70 billion, or around 0.3% of disposable personal income.”
Stocks Stagnant As Treasury Yields Spike
CNBC reports that “the Dow and S&P 500 finished Tuesday’s session little changed, while the Nasdaq Composite slipped. Both the Dow and S&P 500 ended close to their flatlines for the day. Meanwhile, the technology-heavy Nasdaq closed the session about 0.3% lower.”
A real commitment to pursuing diversity, equity and inclusion can pay off financially in the construction industry. Novo Construction CEO Jim Fowler examines five ways to improve DEI performance, beginning with a firm articulation of purpose. Full Story: Construction Dive
Girls ages 9 to 18 who like to work with their hands and build can find support, encouragement and tools they need for their work at the Girls Garage workshop in Berkeley, Calif. They can work on their own ideas or participate in outside projects, producing results that may cause the old guard to do “a double take when they see an all-female Girls Garage construction site — young and old, all races and identities,” says founder Emily Pilloton-Lam.
Full Story: Massachusetts Institute of Technology
Startup PaintJet aims to address the labor pain point in painting with remotely controlled robots. The company focused on practicality in the design of modular robots equipped with cameras and sprayer jets, each of which is attached to a cherry-picker-like lift to scan and paint 50-square-foot sections. Full Story: CNBC
More than 600 localities throughout California will benefit from more than $3.7 billion allocated by the state Transportation Commission to rebuild transportation infrastructure and make it more resilient in the face of climate change. The Infrastructure Investment and Jobs Act accounts for more than $2.3 billion of the total. Full Story: Times of San Diego
Contractors grappling with a labor shortage are taking on more young apprentices. The trend comes as 61% of contractors report in a survey projects have been delayed because of scarce qualified labor, says Ken Simonson, chief economist for the Associated General Contractors of America.
Full Story: Richmond Times-Dispatch (Va.)
Low-carbon concrete can play a significant role in reducing carbon emissions, but it has yet to become commonplace on job sites. Panelists at the Greenbuild International Conference and Expo suggested nine tips to increase usage, including starting small on a project with a low-stakes component and setting aside time for testing. Full Story: Construction Dive
The nation’s Highway Trust Fund is being depleted and will need a long-term solution that could include mileage fees or federal levies on electric vehicles, according to the House highways and transit subcommittee. Proposed strengthening of fuel economy measures “could result in reduced motor fuel consumption of 200 billion gallons by 2050,” according to a statement issued by the panel. Full Story: Engineering News-Record (tiered subscription model) US House of Representatives
US construction spending edged up 0.5% in August from July, the US Census Bureau reported. The August figure is up 7.4% from a year before, while total spending over the first eight months of the year at $1,284.7 billion represents a 4.2% increase from the year-earlier period. Full Story: Cement Products
The number of hotel projects and room counts in the 12-month pipeline rose 7% in the third quarter to reach a level only 3% short of second quarter’s all-time record for projects, according to Lodging Econometrics. Separately, the project count of 1,063 hotels under construction at of the end of the quarter was up 10% from a year before while the room count rose 4%. Full Story: The Construction Broadsheet
Secured solar projects for this year have topped $1 billion for PCL’s solar energy division, the contractor says. The total reflects two years of substantial growth fueled in part by the US Inflation Reduction Act and a similar law in Canada. Full Story: Construction Dive
The White House is asking lawmakers for a nearly $56 billion supplemental funding request, of which more than $23 billion would be earmarked for disaster relief. The request for additional disaster relief, which would be distributed to the Federal Emergency Management Agency and other federal agencies, is based on estimates from communities that have experienced natural disasters this year. Full Story: The Associated Press
Two cities saw an increase in their construction crane count from the first to third quarters, but the count was down in the remaining 12 North American cities surveyed for a total drop of 10%, according to the Rider Levett Bucknall Crane Index. In six of the cities, the count was down by more than 20%, with the overall decline attributed to projects nearing completion but also to rising interest rates. Full Story: Construction Dive
High hopes for US high-speed rail
An expansion could create thousands of jobs and slash greenhouse gas emissions, says a Mineta Transportation Institute study. A report says that high-speed rail could lower transportation emissions by shifting travelers from automobiles to electric high-speed trains. Courtesy of Brightline West
- High-speed rail in the U.S. could reduce greenhouse gas emissions from transportation, bring economic benefits to cities and improve regional connectivity, concludes a report published this month by the Mineta Transportation Institute.
- The report notes that the only trains in the U.S. capable of operating faster than 150 mph are Amtrak’s Acela trains, but they reach those speeds for only about 50 miles of track along the Northeast Corridor between Boston and Washington, D.C.
- The Mineta report looks at the benefits touted by several high-speed rail projects, but all are still in the planning phase, except one under construction in California.
San Francisco Mayor London Breed is looking to recently signed legislation that deregulates aspects of the construction process to accelerate housing development. State law requires the city to build 82,000 housing units by 2031, yet the city’s completion rate is 3,000 annually, and Breed is aiming for a switch to over-the-counter permits to provide a solution. Full Story: Route Fifty
NASA has partnered with SKS Partners and the University of California at Berkeley to build a $2 billion research center at Moffett Field near Mountain View, Calif. Construction is scheduled to begin in 2026 on the Berkeley Space Center, which offers 1.4 million square feet for labs, classrooms, offices and retail on a 36-acre campus that includes housing. Full Story: Mountain View Voice (Palo Alto, Calif.)
Construction that began during winter on a jail in Napa County, Calif., is about 40% complete, as workers use a crane to place precast concrete cells. The $133 million project spans 109,302 square feet and is expected to be finished late next year. Full Story: Napa Valley Register (Calif.)
Venable — Supreme Court Considers Whether to Expand Constitutional Takings to Legislative Development Fees
When George Sheetz planned to build an 1800-square-foot manufactured home on his California property, he could hardly have thought his routine permit request would end up at the U.S. Supreme Court. But when the County of El Dorado required Mr. Sheetz to pay $23,420 to mitigate for purported impacts of his modest new home on state and local roads, he sued. California courts rejected his claim that the permit fee, or “exaction,” was an unconstitutional taking. The Supreme Court recently granted Mr. Sheetz’s cert petition and may use his appeal to resolve a split of authority concerning legislative development conditions and the Fifth Amendment.
The fundamental principle to be heard by the Court is whether development fees and other conditions imposed by a legislative body should be exempt from the prohibition against government imposition of unconstitutional conditions. For years, the Court’s rulings in Nollan v. Cal. Coastal Commission and Dolan v. City of Tigard established the framework for constitutional challenges to development conditions. Such conditions must have a “nexus” and “rough proportionality” between the government’s demand and the perceived harm the development causes. However, since those rulings many courts have exempted legislatively established fees and exactions from application of the Nollan/Dolan doctrine.
The flimsy rationale for this judicially imposed exemption appears to be that generally applicable legislation is subject to the ordinary restraints of the democratic political process. Using more common terms, if a legislature imposes egregious development fees, voters could “kick the bums out!” In reality, as our national land use and zoning practice bears out, local officials impose ever-increasing fees on developers to address traffic and other infrastructure concerns, instead of passing general tax increases on all citizens. Developers make an easy target and a convenient scapegoat.
In the past 20 years, state and federal courts around the country have begun to question this legislative taking exemption. For instance, the Sixth Circuit recently rejected the City of Nashville’s attempt to force a homebuilder to “pay for a sidewalk that he may well never use,” as it is “2.5 miles away from his project.” Knight v. Metro. Gov’t of Nashville & Davidson County. Numerous industry groups supporting Mr. Sheetz’s cert petition pointed out a significant split in judicial authority over whether to apply the takings doctrine to legislative actions, as well as many academic analyses questioning the exemption.
How might the Supreme Court resolve this split? In his 2021 opinion in Cedar Point Nursery v. Hassid, Chief Justice Roberts offers some clues. In part, he wrote: “[t]he essential question… is whether the government has physically taken property for itself or someone else—by whatever means—or has instead restricted a property owner’s ability to use his own property.” In other words, courts should look at what the exaction does, rather than how it was imposed or who imposed it.
If the Supreme Court determines there is no such legislative exemption allowed in determining whether an exaction is an unconstitutional taking, then it will send the Sheetz case back to the trial court to determine whether the fee imposed has a nexus and a rough proportionality to the purported impact associated with the development of Mr. Sheetz’s single-family home. This may result in municipalities being required to provide proper justification for fee increases that may be challenged in the future by developers and property owners when such justification is deemed to be lacking.
The Court’s decision and, in particular, the scope of the opinion could have wide-ranging impacts on local land use and development processes throughout the country. Standard legislative “proffers” and development conditions are common in many jurisdictions and play a critical role in outlining the cost and viability of new development projects. While some developers and property owners may welcome a change in the way that development costs are mandated, a Supreme Court decision that either invalidates or calls into question the legality of these proffer regimes could create havoc at the local level and would only add additional uncertainty to a real estate development market that is struggling to navigate a difficult economic climate.