The Dodge Momentum Index increased 1 percent in October from September but slumped 8 percent year over year, Dodge Construction Network reports. The index is “a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.”
The commercial component rose 2 percent for the month but declined 14 percent year over year; the institutional component slipped 1 percent for the month but rose 7 percent year over year. “Economic activity in the services sector expanded in October for the 10th consecutive month,” the Institute for Supply Management reported on Nov. 3. Construction is among the 13 sectors (out of 18) that reported an increase in business activity, employment (nine sectors), and order backlogs (eight), but is one of the few sectors reporting a decrease in new orders (four sectors) and prices paid for materials and services (four), as well as slower supplier deliveries (three sectors).
Items significant for construction reported up in price include diesel fuel (four months in a row), electric transformers and insulation. Copper-based products, lumber and oriented strand board panels were listed as down in price. Items listed in short supply include construction labor (two months), electrical components (seven) and transformers (14). Construction industry pay rose less in the third quarter of 2023 than a year earlier and less than in the overall private sector.
Wages and salaries in the construction industry rose 1.1 percent, seasonally adjusted, in Q3 and 4.5 percent year over year, down from 4.7 percent a year earlier, BLS reported on Oct. 31. Wages for the total private sector increased 1.1 percent in Q3 and 4.5 percent year over year, down from 5.2 percent a year ago. Total compensation (wages, salaries and benefits, including required employer payments) in construction rose 0.8 percent in Q3 and 4.1 percent year over year, down from 4.4 percent a year earlier.
Total private industry compensation increased 1.0 percent in Q3 and 4.3 percent year over year, down from 5.2 percent the year before. “Hard” building construction cost increases continued at the same 1.6 percent quarterly rate from April 1 to July 1 as in the previous quarter, consultancy Rider Levett Bucknall reported on Oct. 23, based on its latest quarterly National Construction Cost Index. From July 1, 2022, to July 1, 2023, the index rose 6.5 percent, down from 8.2 percent in the previous 12 months. Among 12 U.S. cities, the latest three-month change ranged from 2.8 percent in Seattle to 0.7 percent in San Francisco; the 12-month change ranged from 9.2 percent in Seattle to 4.8 percent in Honolulu.
“The immense amount of energy needed to power generative artificial intelligence models, like the one behind ChatGPT, is creating a new market for data centers that run on alternative energy sources,” the Wall Street Journal reported. “Driven by energy demands and sustainability goals, [firms are looking at a] range of sources, including geothermal, nuclear and flared gas, a byproduct of oil production. Crusoe, which began as a cryptocurrency mining operation, has more than 100 small, modular data centers built on-site at oil wells in states such as North Dakota, Colorado and Wyoming, where the company said it buys gas at low cost and has immediate access to it.”
Cities hoping to convert emptying office buildings into apartments are running into financing issues, stagnating rental markets and other challenges that are bottling up their efforts. Developers reported that last year created just 3,575 apartment units in the U.S. through office conversions, according to an analysis by rental listing site RentCafe. That amounts to fewer than 1 percent of all apartments built that year through new construction. The number of office conversions is poised to increase sharply this year, according to brokerage CBRE, as office vacancies keep rising and developers see conversions to other property types as an alternative. Even so, the process has always been fraught with difficulty and few office buildings are natural candidates. Conversions are easiest in older, lower-quality and mostly empty buildings with small floors. But less than 1 percent of office space in the biggest U.S. cities ticks those boxes, according to Avison Young. In significant ways, the conversion process is getting even harder now. Slowing rent growth might make apartment conversions less attractive to investors, if the trend persists into next year, CBRE executives say.
