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Green Shoots of Recovery for Higher Education

Throughout the U.S. colleges and universities have become hot spots for new COVID-19 infections, often with numbers that are astronomical for the small towns in which the schools are located. After one month, however, returning to school has been less of a problem for the economy than was feared. This doesn’t mean we’re out of the woods, of course, but the outbreaks have so far been mostly confined to the campuses, rather than setting off big spikes in the college towns. Obviously, stay in touch with this issue as flu season begins.

This morning brought a report from the National Student Clearinghouse that was more good news for the higher ed market. The National Student Clearinghouse Research Center released a preliminary report on fall enrollment across the U.S. today and its results were better than expected. Colleges and universities have seen undergraduate enrollment decline 2.5% in fall compared to last year. Public 4-year schools were nearly even with 2019, and private non-profit schools were off 3.8%. One downside surprise was that community colleges saw a 7.5% decline. Community colleges were expected to get a bump because of the economic impact of the pandemic. Another troubling trend was the decline in foreign students. The pandemic, and its related travel restrictions, accelerated the declining foreign student enrollment to 11% in fall 2020. Only 22% of the colleges and universities reported in time for this update, so it is possible that these trends will see revisions by the time of the final report in late fall.

Source: National Student Clearinghouse

Pennsylvania institutions fared much worse than the nation as a whole, probably because of the predominance of private 4-year schools, with enrollments shrinking 9.2%. One national trend that is likely to hit Pittsburgh universities harder than most is the 11% drop in foreign students enrolled in U.S. colleges. Locally, Duquesne University was off very slightly, as an increase in graduate students virtually offset the drop in undergrad enrollment. The same trend boosted enrollment slightly higher at Slippery Rock and California University of PA. Local private colleges Point Park University and Grove City College both report that enrollment was lower but in line with 2019. Robert Morris University saw a decline of just under 10% but attributed that to an unusually large graduating class in 2019 and a significant drop in international students. Data on Pitt and CMU enrollments wasn’t available but, assuming enrollment declines were milder than expected there also, news is good for the many planned construction projects in Oakland.

In project news, JMC Holdings selected the PJ Dick/Dick Building Co. team as construction manager for the 1501 Penn Avenue office building, which is expected to advance in spite of rejection by the Pittsburgh Planning Commission. Another large redevelopment will be before the Zoning Board of Adjustment in October. Echo Realty’s Shady Hill mixed-use project, a demolition and redevelopment of the Shakespeare Street Giant Eagle in Shadyside, involves a new 36,000 square foot Giant Eagle and 38,000 square feet of retail, to be built by Continental Building Co., and a $10 million, 432-car garage that has been awarded to Carl Walker Construction. Shady Hill also includes a $37 million, 252-unit apartment being developed by Echo’s partner Greystar. Massaro Corp. is the contractor for the apartments.

Mele & Mele was low on the $25.7 million Canonsburg-Houston WWTP. Yarborough was low bidder on the $1.9 million Port Authority Manchester Garage engine test facility. Masco Construction was low on the $3.6 million Robinson Township Police Station. Sentinel Construction is about to start on an $8.7 million renovation of Seven Oaks Country Club in Beaver. Johnson Development has awarded a contract to Franjo Construction for the new $6 million, 105,000 square foot Cube Smart Self-Storage on the North Side. Franjo is also the contractor for a $3.2 million upgrade to Zamagias’ Shaler Plaza.The $67 million Canon McMillan Middle School is out to bid due Oct. 15. 

Pittsburgh Planning Should Approve This Project

On September 15, the Pittsburgh Planning Commission will again hear from JMC Holdings about its plans for a $200 million mid-rise office building proposed for the for Wholey refrigerated warehouse site. The project , 1501 Penn Avenue, is a 525,000 square foot office building, with 12 floors of offices atop a podium that includes parking and retail. JMC has worked with Turner Construction on preconstruction, although the project is expected to eventually bid to Turner, Mascaro, Rycon, and a PJ Dick/Dick Building Co. joint venture.

Rendering by Brandon Haw Architecture

When the geometric 21-story structure was first revealed to the public earlier this year, Mayor Peduto panned the design and the Planning Commission was lukewarm about the project. One of the principal concerns is the building’s height, which will be roughly twice that of the next tallest building, the Penn-Rose Building one block east. The 1501 Penn project presents the city with the perfect opportunity to transition what is Pittsburgh’s second-hottest office market (and the one with actual land on which to build) towards Downtown. Real estate professionals have considered the Strip District to be the fringe of the Central Business District for a while now. The Pittsburgh Downtown Partnership includes it in its description of the Greater Downtown. If the vision of developers matches the demand from Pittsburgh’s emerging technologies, the Strip could ultimately look like what Fifth and Forbes are becoming in Oakland – blocks of 10-15 story tech “towers” that put thousands of well-paid people in proximity to the city’s center. The image above shows the glass tower rendered in the context of the 1500 block of Penn Avenue, with Downtown beyond. Its location does not threaten the character of the Strip’s iconic retail blocks to the east and provides a reasonable first step towards denser, taller construction between the 16th Street and Downtown.

Wholey’s warehouse

For those concerned about the cold, symmetrical architecture, let’s remember what building will be replaced by 1501 Penn (see above).

If your argument is that the project is overly ambitious for the times or the market, I understand. That’s the call the developers and their investors get to make, however. The same argument was reasonably made about Bakery Square in 2009. That turned out rather well. Like 1501 Penn Avenue, Bakery Square was the latest in a series of attempts to redevelop a legacy building that was unworkable in the 21st century. Bakery Square was also started during the depths of the Great Recession. The Wholey’s warehouse has been proposed as a telecomm center, apartments, condos, and offices over at least two decades. The structure is poured concrete. The concrete is meant to act as one of the insulating materials so the walls are extremely thick. It simply won’t be re-purposed within the bounds of economic sense. If JMC and its investors see a diamond in the rough, I hope the City of Pittsburgh allows them to polish it. The city may no longer need to offer enticements to attract developers like JMC Holdings from New York, but Pittsburgh isn’t Seattle. Planning Commission would do well to remember that we’re still the pursuer, not the pursued. JMC isn’t proposing a chemical plant, just a place where 1,500 or so people will work. After the obstacles that were put in front of McCaffery Interests for five years to make development of 1600 Smallman and the Terminal Building possible, it might be a good idea to put 1,500 customers one block away. How do you think McCaffery feels about the vision rendered below? Seems like the occupants of 1501 Penn Avenue might like having those lovely lifestyle amenities close by.

Rendering by Studio 97.

1501 Penn Avenue can be another linkage between Downtown and the burgeoning Strip District. The Downtown market has gotten softer in recent years. Allowing the Strip Dictrict to become more like Downtown will make for better connections and better rationale for renting Downtown. Planning Commission should let the rising tide continue.

Another interesting project on the agenda for September 15 is the Uptown Tech Flex development proposed by Westrise. The former commercial laundry on Jumonville Street will be converted by Omega Building Co. into a 63,000 square foot office/lab/shop for emerging tech companies. The property type is suddenly a hot item and the Uptown Tech Flex project is located about midway between Oakland and Downtown, just a block from the route of the Bus Rapid Transit (BRT). You can view Desmone Architects’ design at the Planning Commission’s website. The Westrise development is one more private investment that is slowly bringing Oakland and Downtown together, with Uptown and the Hill District standing to benefit. You can only imagine what might occur in this neighborhood if the BRT was running.

Late Summer Project News

Even in the dead, slow summer in the middle of a pandemic there are still some interesting project announcements. Earlier this week, Clark Street Capital made a presentation of its proposed 300-unit apartment project at 3500 Forbes Avenue in Oakland. A rendering of the project by architects Dwell Design Studio is below. No CM announcement as yet. The $50-60 million tower is the third mid-rise project moving through development in the western Forbes-Fifth corridor in Oakland. Walnut Capital’s innovation Research Tower is under construction. Wexford Health’s research tower on Forbes a block to the east is moving through city approvals.

3500 Forbes Avenue. Rendering by Dwell Design Studio

The city announced an innovative approach to the increased level of homelessness this week. A public/private partnership is developing the “Project Cares” building on Second Avenue. PJ Dick is the contractor for the $15 million, 45,000 square foot building, which is scheduled to start by fall.

In other construction news, TEDCO was the successful bidder on the new $1.7 million PNC branch in Rostraver Township. DiMarco Construction broke ground on a $4.6 million, 18,000 square foot new animal hospital for AVETS in Monroeville. Caliber Contracting Services was selected to build the new $2 million Kinder Care in McCandless. MBM Contracting will be the contractor for Dollar Bank’s new 80,000 square foot headquarters space at 20 Stanwix Street.

The Consumer is Losing Momentum – The Economy Will Follow

This isn’t a great chart, at least not if you’re hoping for an economic recovery to go into high gear. This chart was floating around the internet this week, highlighted by former U.S. Treasury Dept, economist Ernie Tedeschi (@ernietedschi). Stu Hoffman (@StuHoffmanPNC) from PNC commented on it. He’s been unfailingly upbeat about the recovery but noted that the loss of $600 and slow walked unemployment compensation payments will drag August’s consumer income and spending. Consumers have been fueling the recovery since April ended. This chart also explains why Congress needs to act so that consumers and businesses have some certainty about what to expect.

Housing starts jumped 23.4% from July 2019 to July 2020. That’s a very hopeful sign. Much of the demand is being driven by record low mortgage rates but data from the sales suggests that the pent-up home ownership share of Millennials is finally adding to demand. Prices of homes, whether existing or new construction, are up 8% year-over-year. The sustained demand is helping but the short supply of homes for sale is really creating upward pressure. At the end of July, the inventory of homes for sale was 35 days worth. That’s one-third what is necessary for a smoothly functioning housing market.

One harbinger of construction recovery that is languishing still is the AIA’s Architectural Billings Index (ABI). The AIA surveys its member firms each month and the ABI tracks whether billings, design contracts, and inquiries are higher or lower than the previous month. The July ABI was at 40 (same as June). That means only four out of ten firms saw higher billings. Inquiries were at 49.1. Half the firms saw declining inquiries. With design leading construction by 9-12 months, the results from the ABI survey foretell a slow winter.

Construction bidding in Western PA remains slow. Competition is driving bids much lower than a year ago. Recent contract awards include Kokosing Construction landing the $14.16 million general contract on ALCOSAN’s $19.1 Return Activated Sludge Piping and Pump Replacement project. DiMarco Construction started work on the $3.3 million NorthStar Chevrolet service center.  Oxford Development selected Rycon Construction as CM for its $3.5 million adaptive re-use of the Achieva Building in the Strip District. Rycon is also the CM for a $2.2 million renovation to medical device manufacturing and office space for Phillips in Murrysville. Dick Building Co. is fitting out the new offices for Pittsburgh Downtown Partnership in the Bank Tower.

The State of the Economy in a Few Charts

Thursday morning’s report on first-time unemployment claims brought (relatively) good news on the state of the economy. First-time claims for unemployment fell by 228,000 to 963,000. That marked the first week in which claims were below one million since March. The relief felt by the decline in unemployment claims is tempered by the fact that the 963,000 claims is the highest in U.S. history prior to the pandemic. Some 28.3 million American are receiving unemployment compensation of some sort as of July 31.

The drop in unemployment claims is the second bit of improvement news issued during the past week. The Census Bureau announced last week that durable goods orders jumped for the second straight month, climbing to $207 billion in July (see chart below). Durable goods shipments declined from nearly $250 billion in February to $168 billion in May. The increase in purchases of durable goods suggests that consumers are more willing to spend on bigger ticket items than they were during the shutdown.

Other reports on economic activity during the second quarter were not so upbeat. As expected, the first reading on GDP in the second quarter showed a 9.5% decline from March to June. That’s a 32% drop on an annualized basis. The shutdown in economic activity from mid-March through May made such a decline inevitable. Economists expect that the increase in activity will be strong, although the renewed outbreak of COVID-19 in most of the U.S. since mid-June is going to slow the pace of growth. Job creation slowed in July after two months of robust hiring. Employers added 1.7 million jobs in July. That level of hiring was not enough to offset the cumulative number of first-time unemployment claims during the month. Unemployment continued to fall in July, to 10.2 percent.

While the shelter-at-home orders stopped economic activity cold in the spring, a look at indicators of consumer behavior since the outbreak hit the U.S. reveals the difficulty policy makers faced. Those who viewed the shutdown of businesses as a cure worse than the disease overlook the reality that people were going to alter their behavior because of the pandemic, whether the government mandated it or not. The chart below reflects insights on three metrics of consumer behavior. The number of dinner reservations and travel trips plummeted from March to April, and have remained at depressed levels through July. In response to the plunge in mortgage rates, home buyers have bucked the otherwise negative trends to purchase houses in much greater than normal volumes. The housing industry in general has been one of the few bright spots in the economy.

Construction news is limited in mid-2020. Bidding has slowed precipitously. Construction has proceeded on a few projects that were in the pipeline for 2020. Rycon Construction started work on the $38 million Fifth & Clyde Student Residence for Carnegie Mellon. PJ Dick started work on the $55 million Pennley Place mixed-use development in East Liberty. Seneca Valley School District awarded contracts for its $48.8 million Evans City Elementary School. Rycon Construction is the general contractor. Franjo Construction was awarded the contract for the $5.5 million new Munhall Borough Building. Franjo also started construction on two condos in Lawrenceville, the 24-unit Lawrenceville Lofts and the 21-unit Penn 23 condo. Turner Construction is the contractor for Perkins Eastman’s fit-out of 15,000 square feet in 525 William Penn Place. Dancing Gnome selected A. Martini & Co. for its $1.6 million expansion in Sharpsburg. TBI Contracting was selected for the $1.5 million new Derry Township VFD.

Some Random and Personal Observations

Jack Mascaro died on Sunday. There were few figures who played a bigger role in the construction industry in the era following the collapse of the steel industry than Jack did. His personality will be missed. I’ve done business with Mascaro Construction for 25 years now but didn’t get to know Jack until the time between selling Pittsburgh Construction News and starting the magazine BreakingGround. Over the past decade we became friends, working together every year or so on a project that he was pursuing (and for which he wanted some free information). I will miss getting those calls.

In his obituary there was mention of his starting his business in 1988 on the Ping Pong table in the basement of his Upper St. Clair home. This story is part of the Mascaro lore but it always makes me chuckle. Jack was proud of the humble beginnings story but he was anything but the kind of businessman who worked from his basement. Jack invested heavily in his people, his technology, his equipment, and his facilities. He didn’t do things on the cheap and he built a company that is one of the leaders of the construction industry. He was proud of that and of the fact that his three sons were trying to take the business to a higher level than he left it for them.

Jack was impatient. He was a ball buster. He didn’t like to lose, even in an industry where you lose way more opportunities than you win. And he had a high level of curiosity. Jack gave me a new book to read every time we met in his office. There was a lot more to Jack than I ever got to see but two stories stick in my mind when I think of how to describe Jack.

The first took place in 2006 or 2007, when we were first getting to know each other. One of his competitors had just landed a big job that he was competing to build. It was not the first big job the competitor had landed recently. My phone rang. Instead of hello, I heard Jack’s unmistakable high raspy voice asking me if [fill in the blank] “needs to win every [expletive deleted] job in Pittsburgh?!?” When I reminded him that the same competitor could have asked that question about Mascaro Construction just a few years before that, he laughed and said, “Well that was then. This is now.”

In 2018, Jack asked me for a bunch of data to try and understand an aspect of the market better for an idea he had to create a more competitive environment for the Laborers union. We had lunch at Legends of the North Shore. There was a server who would speak Italian with Jack so he could practice learning the language. Jack was really interested in digging into the data I pulled together for him, trying to see if it supported his idea and thinking about where his argument might be weak. All of this was after beating a bout with cancer into remission. I asked him why he was so concerned about the industry when he was technically retired from the operations. “I’m 73 years old. I’m just starting to get good at all of this,” he said.

I just turned 63. I try to think about that lunch when I feel tired of the day-to-day nonsense of running a business much smaller than Mascaro Construction. Jack left behind a great legacy. His sons, John, Jeffrey and Michael, care about Mascaro Construction and its people the way he did. His humor, passion, and curiosity left an imprint on an industry and a city. Alla prossima Jack.


Changing gears, Monday brought more great news about the progress towards a vaccine for COVID-19. The vaccine being developed by Oxford University and Asta Zeneca completed an early trial on 1,007 people and was found to be safe and to trigger the antibodies needed to fight the virus. This news follows last week’s announcement that the Moderna vaccine had been effective in triggering the defense antibodies in 100% of its trials and would go into large-scale human testing. The news is a reminder that the solution to the economic problems caused by the pandemic will be a medical solution. Until then, data is showing that people are going to avoid economic activities that expose them to the public, meaning that the recovery will be slow until the fear of transmission fades. Wash your hands. Stay six feet apart. Wear a mask.

In local construction news, Fay-Penn Economic Council announced the start of construction of a 100,500 square foot spec industrial building in Fayette Business Park in Georges Township south of Uniontown. Fairchance Construction is building it. Construction also started on the $20 million micro-grid project being developed by People Gas to power the Pittsburgh International Airport site. PJ Dick is the construction manager.

Healthcare Construction Update

One of the reasons the Pittsburgh construction market looks weaker for the next 12-18 months is the uncertainty in the healthcare market. Just two years ago, the major programs at UPMC and AHN were going to bring billions of dollars in construction projects to the region from 2019-2022. Some of those projects were being pushed back already (UPMC Heart & Transplant, UPMC Shadyside/Hillman were probably 2021-2022 starts at best), but the financial stress caused by the COVID-19 pandemic. If you want an in-depth look at what’s going on in the healthcare market in Pittsburgh (and beyond), the July/August BreakingGround dropped this week. Check out the feature.Earlier this week, AHN presented the updated institutional master plan for West Penn Hospital to Pittsburgh Planning Commission. Among the major highlights of the ten-year plan were a $100 million outpatient/medical office, a replacement for the Mellon Pavilion, and a 450,000 square foot inpatient tower. Along with the inpatient tower, a 100,000 square foot inpatient infill project will be built, an investment of $300-400 million for new or expanded inpatient facilities. AHN’s other major project on the boards is the $300 million cardiovascular tower planned as a vertical addition above the new cancer center (see cover above) at Allegheny General Hospital. No schedule has been set for construction but CM proposals are expected to be sought this summer.

Following up two projects that had been bid earlier in the spring, PJ Dick is doing preconstruction services for The Watson Institute’s $9 million expansion in Sewickley and Evans General Contracting is building the 250,000 square foot global distribution center for Komatsu. That’s being developed by SunCap Property Group at the Alta Vista Business Park in Fallowfield Township, Washington County. That’s a big win for Mon Valley Alliance and Washington County.

Construction Costs Are Cooling

The sharp slowdown in construction globally drove declines in many materials and building products in the second quarter. And competitive reactions to slower future markets pushed contractor prices lower. These were the observations of Turner Construction Vice President Attilio Rivetti, who compiled the Turner Building Construction Index (BCI) for the period. The BCI for the second quarter slipped lower to 1177. The decline was the first since 2010. Rivetti remarked that the third quarter should “more clearly define the fluctuation of escalation of cost in the construction industry.” You can download the report here.

Turner’s Building Construction Index fell by 1% during the 2nd quarter.

One week ago, the Bureau of Labor Statistics released its report on May’s inflation, including producer price indexes (PPI) for construction. The report showed costs for construction put in place were still up year-over-year, but that PPI inflation for all types of construction was roughly half what it was in January and February. For the first time in memory, inputs to construction across all types and trades were negative compared to May 2019. Across the board construction input deflation did not even occur during the Great Recession’s trough. You can read the tables prepared by the Associated General Contractors here.

Some random takes on the unemployment picture over the past week: Since the details on the Payroll Protection Program were revealed we’ve learned that firms employing a total of 51 million people received PPP loans. Since it’s estimated that roughly one-third of the people laid off during the April/May shutdown of the economy have returned to work, the number of people recalled by employers seeking to avoid repayment of the loans could be a drag on employment gains after PPP expires. If workers recalled by firms with PPP loans can’t be supported by revenues after the program expires, it’s likely more will fall back into unemployment. Wells Fargo Economics is forecasting that unemployment will stay above 8% in 2020 and remain above 6% through 2021.

One interesting economic data point to bear in mind during the debate over returning to schools is the fact that 23% of workers are the parent of a child under the age of 13.

Franjo Cosntruction has started work on the $7 million new Bowser Hyundai dealership in Chippewa Township, Beaver Co. Franjo is also the contractor for the new $10 million, 51-unit condo being developed by Solara Ventures at 26th & Penn. TEDCO Construction was awarded the general construction contract from DGS for the $3 million Ground Floor Renovation at the Cathedral of Learning. Mele & Mele & Sons was awarded the general contract for the Breakneck Creek Wastewater Treatment Plant Expansion in Adams Township, Butler County. Ferri Contracting was awarded the $6.3 million Kiski Pump Stations replacement in Leechburg. Derek Engineering was the successful contractor on the new Taco Bell in Chippewa Township.

A Flurry of Jobs Reports With Good News/Bad News

Make no mistake. When 4.8 million Americans go back to work in one month it’s good news. Today’s Employment Situation Summary from the Census Bureau showed that about 30% of the workers laid off during the March-April COVID-19 mitigation have been re-hired. Unemployment fell to 11.1%. That report comes on the heels of private payroll report for June from processor ADP, which showed 2.4 million jobs being recovered in the private sector last month. The Census Bureau rolling chart is one that is unlike any other in my lifetime.

So, what’s the bad news? First, the report on first-time unemployment claims for the week of June 20 was released this morning and it showed that claims increased last week. Another 1.428 million people filed for unemployment and the number of people continuing to claim unemployment comp jumped to 19.2 million. Last week marked 15 consecutive weeks with first-time claims in excess of one million. The ADP data was essentially a mirror image of its adjusted May numbers, meaning the growth merely backfilled the additional reductions in May.

Let’s re-emphasize: adding almost five million jobs is good for the economy, especially when the hiring coincides with an increase in the number of people in the workforce, which is what happened in June. What has economists concerned is the fact that the June hiring was mostly unaffected by the rapidly rising number of new infections in the U.S. The most acutely affected areas in the South and Southwest are now seeing pullbacks on business openings and on customers willing to risk “normal” activities. Don’t be persuaded by the images in the media of crowded bars and parties. As the hospitalizations are increasing, citizens in the areas affected are reducing their exposure. That means there will be pressures to reduce costs for businesses in those areas soon. And, in the final analysis, the economy doesn’t really re-start until the schools do. That prospect is looking grimmer now.

The problem continues to be a public health problem first and an economic problem second. Leaders cannot re-start the economy by imposing their will. This isn’t a partisan phenomenon. Yes, the first states to see new surges were red states with governors who have had to walk back their bluster. California is also seeing record spikes, and they were the first state to shelter at home, and California’s Gov. Newsome is a deep blue Democrat. You only need to look at Allegheny County to see that taking your eye off the ball for a couple of weekends was enough to fire community spread again.

There is a potential upside to this new spike in infections. It may drive people to finally act as though a highly contagious virus is sweeping the U.S. That might push enough people to capitulate to preventative measures, like wearing masks outside their homes, to impede the spread. In stock market terms, capitulation is when the last of the bulls finally sell off. Every stock market crash eventually has a capitulation point, after which recovery begins. Let’s hope the June flare-up, which will set the economy back for a spell, is that capitulation point for COVID-19. Until there is a vaccine, what stops the virus in its tracks is not having hosts. Following the simplest of preventative measures deprives COVID-19 of its oxygen to spread.

It’s giong to be a tough time to own a bar, or a theater, or a football team for that matter, until a vaccine is delivered. But stamping out the spread gets us a long way back to economic growth.

On the bidding front, Canonsburg-Houston Joint Authority put the $28 million 2nd phase of its wastewater treatment plant modernization out to bid, due Aug. 17 according to the Builders Exchange. Massaro CM Services is managing the bidding of the $7 million PSU West Campus Chilled Water Plant in State College. TBI Contracting was the low bidder on the $2.7 million spec Alta Vista Lot 10A industrial building in Washington County. Carl Walker Construction is about to start work on the 376-car parking garage at the Vision on Fifteenth office building in the Strip District.

Good News and Bad, A Month Into Re-Opening

It’s going to be Labor Day until we have a (somewhat) reliable read on just how much the economy is re-opening. There has to be back-to-school before there is back-to-work. Colleges have to see what kind of decline in enrollment the pandemic has created. This will vary. The significant chunk of businesses that make their livelihood during the summers will know how that went. What all of this will depend upon is the consumer returning from sheltering at home to spending. There’s some good new there. The savings rate for U.S. consumers is at an all-time high. The $1,200/person checks and shutdown of most businesses kept a lot of cash in the pockets of consumers. Readings on consumer sentiment suggests that people are itching to use that dry powder. That would be good for business.

There are a variety of good news reports since the late May/early June opening of most states. The housing market is probably the best news. Housing starts bounced back 5.4% in May and permits were up 14.4%, a good sign for June and July. The NAHB Market Index jumped to 58 in June. Consumer spending jumped 18% in May, basically reversing a similar decline in April. Thursday morning’s report on new unemployment claims showed 767,000 fewer people on continuing unemployment, dropping the number to 19.5 million.

That unemployment claims report also had bad news, of which there is still plenty. During the week ending June 13, an additional 1.48 million people filed for unemployment for the first time. That’s down slightly from the week before and a continuation of an 8-week trend since the peak of job losses in April, but 1.48 million new claims is about 7 times the filings in February. The more concerning news is the increasing number of hospitalizations and infections across 26 states, including several of the largest hot-weather states. Sadly, this has become a political issue as much as a public health issue, but the long and short of the problem is that COVID-19 cases are rising sharply instead of falling as hoped. Should this surge go on, there will be economic damage in the South, Southwest, and West. The big increases are in Florida, Texas, Arizona, Georgia, California, Oregon, and the Carolinas. Those are red, blue, and purple states. COVID-19 has proven to be color blind. If conditions worsen, even reluctant elected officials will have to consider mitigation. Arizona stopped elective surgery again, meaning hospitals will face steep revenue declines. Even without mitigation or shelter at home, private citizens and businesses have shown they will pull back. Disney delayed opening its California parks until after July 4, for example. The places experiencing a spike are also among the most popular travel destinations or business hubs in the U.S., which means there will be spreading into other regions from these hot spots. We won’t have to wait for Labor Day to see how this plays out. By mid-July the efforts to tamp down the flare ups will be measurable.

This is not a great trend. Source: Johns Hopkins University Medicine

Regional construction bidding slowed considerably in June. Bidding is picking up a bit into July, which is typically a slower month for bidding activity. The $55 million Evans City Elementary School bids July 14. ALCOSAN’s next project, a $22 million upgrade of its Return Activate Sludge facilities is due July 8. PJ Dick is starting work on the $15 million Ihmsen Hall at Mt. Aloysius College. Rycon Construction is doing a new $2.2 million branch for Chase Bank in Bridgeville. A report on the region’s largest construction project: about 25% of the workforce has returned to work at Shell’s Monaca project. The virus safety measures are expected to reduce the peak labor force from 6,000 pre-pandemic to 4,000, which will add six months or so to the original completion schedule.

Based upon activity through May, our estimate for construction starts in metro Pittsburgh for the first half of 2020 is $1.71 billion. Given the overall economic picture, there is going to be less activity during the last six months of the year. Activity for 2020 will not reach $4 billion, and could be off as much as 30% from the $4.8 billion forecast at the beginning of 2020. Activity in the technology sector is encouraging, especially to the degree that the research at Pitt and CMU are still supporting dynamic, high-demand technology solutions to problems like the coronavirus and cybersecurity. A medical solution by early 2021 could unleash enough pent-up demand to recoup the construction that wasn’t executed in 2020. Pittsburgh’s construction industry, in the meantime, is left waiting for such a solution.