Category: National Economy

Employers Are Hiring – Job Seekers Aren’t as Ready to Return (Part 2)

There have been some interesting follow on articles about the jobs report Friday, which is being seen as a) great news; b) very disappointing; or c) a relief after April’s disappointing hiring. Which one you choose depends largely upon which political party you are fervently backing and which partisan media you are following. (If the last sentence does not describe you, chances are you would choose option C.)

My take on Friday was that our economic situation has been created by an almost unprecedented non-economic disruption that will require more than a few months to re-balance. One thing I thought was clear from Friday’s report on hiring in May was that the workforce was not ready to return to pre-pandemic work. Since Friday morning two things I read offer more color to the employment situation. One is local. The Pennsylvania Economy League of Greater Pittsburgh issued its Regional Consumer Confidence Trend Analysis for June. the report covers a wide range of consumer issues but has some insight into the employment trends. Among the employment data was that 14% of respondents said they were not working and not looking for a job. If that’s even remotely representative of the national sentiment, it means that workers will be hard to find this summer and the June jobs report (and likely July’s and August’s) won’t be showing that the economy is on a million-jobs-per-month tear either. Among those 14% not looking, 29% said that the lack of child care was the reason. That suggests that the situation won’t improve dramatically until school returns. Only 3% said they reluctance to look for work was due to higher unemployment benefits. That’s not necessarily surprising (or accurate) either. There are disincentives from reporting that government benefits are why you aren’t working.

The interesting response from that group was the 16% who said they were taking time off to reassess their careers. This group would identify with a New York Times editorial piece by economist Betsey Stevenson that suggested that the lag between employers and job seekers was wider because the pandemic caused more workers to take stock of their way of living and working that previous recessions. Stevenson cited a Pew Foundation study in January that found that while 51% of Americans were optimistic about their employment outlook, 66% had seriously considered or actively sought to change jobs. That Pew study found less optimism from people about finding a job that paid as well as their previous job, which squares with the idea that workers would be considering changing jobs rather than going back to what was before. That’s resonates even more when you consider that unemployment is twice as high among low wage earners than the rest of the workforce.

The Times article touched on a number of other factors keeping workforce participation lower than would be expected in a robust recovery of GDP like we are currently experiencing. Among them are continued health concerns about COVID-19 spread at work, an existing desire to change careers that a layoff accelerated, and an increased desire to work from home that is impacting the actions of people who are currently employed. The bottom line conclusion (which is backed up by JOLTS data) is that there is a reallocation of people and jobs underway that will take months to sort out. The author compared the situation to the singles scene, noting that it takes more than one date to find the right match.

If these survey results are indicative of the prevailing workforce sentiments, employers are likely to be looking for workers longer and making unexpected changes to wages and workplace conditions. In other words, don’t expect the jobs reports to be upwards rockets of employment growth until the weather cools.

One project news update: RIDC selected PJ Dick as construction manager for the third 100,000 square foot infill building at Mill 19 in Hazelwood.

Employers Are Hiring – Job Seekers Aren’t as Ready to Return

Economists breathed a sigh of relief when the Census Bureau reported that U.S. employers added 559,000 jobs in May. That’s more than double the job creation in April and more in line with what expectations would be for a fully recovering economy. The unemployment rate renewed its downward trend, falling to 5.8%.

Forecasts for May job growth were slightly higher – most topped 600,000 – but after April’s surprising shortfall, no economist was making a confident estimate for May. The number reported Friday morning more closely mirrored Thursday’s data on private payrolls from ADP. The payroll processing giant reported 978,000 additions to payrolls in May.

New hiring in May was reported to be lower than the potential for job growth. The JOLTS survey in May showed a record number of new openings. Employers are increasingly citing an inability to attract applicants. Employment recruiters unanimously report that listings are outnumbering job seekers by a wide margin. This input, along with the fact that wages have jumped 1.2% in the past two months, adds weight to Republicans seeking to end the supplemental and extended unemployment benefits, which they say is an incentive to stay unemployed.

The reality is more complicated than politicians care to embrace. No conclusive surveying has been done that can keep up with the dynamic situation of this recovery but there are a number of factors keeping people out of the workforce that have been identified. First among them is lingering concern about health. The pandemic has not ended. Vaccinations have knocked down the candidates for community spread but with at least 40% of the adult population unvaccinated, those with concerns about COVID-19 have reason to worry. Related to that, childcare capacity still lags what is needed. The nation’s largest childcare provider – the public school system – has not returned to normal operations yet. Reports of difficulty finding workers cut across most industries but the most common complaints are for low wage positions. These positions will be the ones that benefit most from the enhanced unemployment benefits. ZipRecruiter reports that more than half of its job seekers want work from home options while only 10% of employers are offering that option. Perhaps the most overlooked factor is that the economic recovery driving new hiring is a few months old. In most states, workers in the prime age cohorts of 25-55 have only been eligible for vaccination since mid-April. For those unemployed by the pandemic, the renewed activity has not been here long enough to overcome the many conflicting factors that are keeping workers – particularly young mothers – from re-entering the job market.

One indicator that this is the case is the online job search market. Indeed.com reported that postings were 27% higher at the end of May than in February 2020. ZipRecruiter notes that its listings have increased much faster than online searches.

None of this should be particularly surprising. The world’s biggest economy ground to a halt in about three days last March. Our economy tanked because about 300 million people didn’t leave home for six weeks. All things considered, this recovery has unfolded much more smoothly than expected. I can’t forecast how quickly job creation will ramp up or at what point in 2022 or 2023 the U.S. economy reaches full employment, but I can confidently predict that we will see disappointing job creation numbers again at some point before September. Looking at all the factors influencing economic recovery, it will be a bumpy ride back to normal in 2021.

The one data point that concerns me is the variance between where job seekers want to work and what employers expect for work-from-home. As vaccination rates climb, the decline in infections and hospitalizations has accelerated even though restrictions on gathering have been removed. That has pushed more employers to accelerate plans for full-time return to the office or workplace. There has been a variance between what employees and their bosses predicted about work-from-home throughout the pandemic. Now that time has shown that employers can make the workplace safe from virus spread and the virus is on the decline, the gap has widened. If you think through how that gap may manifest itself, there could be some problems coming.

Employers that embrace work-from-home may attract more and better workers. That could be a competitive advantage. At the same time, if working from home is less productive than its proponents claim (and there is growing evidence that is the case), companies that attract good talent that works from home may fall behind its competition anyway. What will happen to workers with skills that translate well across industries when some industries can work from home better than others? It seems unlikely that a skilled construction worker would leave the trade to work in an industry that allows work-from-home, but will the office and administrative staff for a construction company change industries to work from home instead of the office? At minimum, I believe we will have to see these scenarios play out over the next couple of years before some sort of consensus on work-from-home is reached. And I’m not one who believes that we will end up with a hybrid solution, at least not one that looks different from the model that existed on Valentine’s Day 2020.

Construction is less likely to deal with as many of these uncertainties, including uncertainties about the economy. The nature of the industry is such that the ups and downs of 2021 will have an impact on 2022’s work. The outcome of 2021 is mostly baked in by June and the solutions to the problems of re-starting the economy in 2021 will be mostly worked out by 2022. Assuming that the U.S. can side step any lasting issues from the disrupted supply chain or inflation, construction will be booming in 2022.

Opportunities to land work are accelerating in Western PA. Bids on the $90 structural steel and concrete foundations package for the Airport Terminal Modernization Program was rejected and will be re-bid. The first bid packages for the $230 million FNB Financial Center in the Lower Hill District will go out to bid next week. Packages will include steel, foundations, concrete, and M/E/P. Braddock Library is taking CM proposals from Burchick, Jendoco, A. Martini & Co., PJ Dick, Massaro, and Sota for its 2-phase $13 million renovation. Diocese of Greensburg selected Volpatt Construction for the $2.5 million renovations to St Mary of Czestochowa Church. A. Martini & Co. was selected for the $1.8 million UPMC Passavant Cranberry Cancer Center renovation. C.H. Schwertner & Son started construction on the new Target store at the Kaufmann’s Grand on Fifth. BRIDGES & Co. is building the new $3 million Dialysis Clinic Inc. facility on Perry Highway in McCandless. Extra Storage Space selected Brackenridge Construction for its $6.5 million, 65,000 square foot expansion in Homewood. Continental Real Estate has shifted its Lot 10 building on the North Shore from office/retail/condo to 110-125 apartments. Thompson Thrift will be building the 336-unit, $60 million Prism at Diamond Ridge apartments at the end of 2021.

Inflation Helps Chill Housing Starts But We Should Chill Out About Inflation

Last week’s report on inflation seems to have triggered more fears than the report on March’s inflation, even though there was every reason to believe that prices were racing much higher as the economy raced ahead. The 4.2% jump in consumer prices (CPI) and 6.2% hike in producer prices (PPI) were remarkable only if compared to the consensus expectations for April’s inflation. The economy is bursting back open much faster than was anticipated just four months ago. The supply chain for virtually every product is disrupted and the labor force remains 3 million people smaller than the number of people working in February 2020. Soaring demand meets tight supply. That’s the simplest equation for price increases known to man. I’m not sure what model drove the lower expectations but there was runaway inflation in a handful of categories that all but assured a major (short-term) hike.

The counter argument against panicking about the April “surprise” is patience combined with capitalism. Imbalances in supply and demand exist to a greater degree than normal because of COVID-19 but those imbalances are already being addressed. Higher prices attract suppliers to increase supply and discourage consumers from purchasing. Eventually (or soon), equilibrium returns. There is a great commentary on the current inflation situation in this week’s Pensford letter. (I highly recommend subscribing if you don’t already.) Pensford distills the market pretty succinctly below:

Nearly 60% of the increase came from just five components – used cars, lodging, rental cars, airfare, and eating out.  Used cars and truck prices were up a staggering 10%, comprising almost a third of the total CPI jump.  That’s not sustainable over the long term.  Compared to April 2019 (two years ago), inflation is up 2.2%.

More likely, we are experiencing a temporary shock of re-opening all at once, just like we experienced a temporary shock of shutting down a year ago.  Remember when there was a toilet paper shortage?  Demand exceeded supply.  Same thing is happening now across multiple supply chains.  You think Chick-Fil-A won’t figure out how to fix its shortage of sauce?  These disruptions will be resolved.

Pensford notes that a key inflationary metric, the velocity of money, is definitely pointing away from inflation. Velocity is the number of times that a dollar (or unit of currency) is used to purchase goods or services domestically. If the Federal Reserve Bank increases the supply of money by buying bonds, inflation only occurs if the money is used to buy things and drive prices up. A look at the velocity of the money supply going back 40 years shows why inflation has been trending lower even in times of increased money supply, like in the early 2010s. This trend, like the others mentioned above, doesn’t guarantee that demand won’t squeeze out supply or drive wages upward into an inflationary cycle, but absent a sharp increase in the velocity of money, equilibrium in supply and demand will bring inflation back under 2% within this year.

Source: Federal Reserve Bank of St. Louis

Probably the simplest antidote for inflation panic is to remember that April’s prices were being compared against those from April 2020, a time when there was almost no demand because we were all hunkered down at home. Consumer prices in April 2021 were 2.2% higher than those of April 2019, just to give a bit of perspective and inspire a deep breath. It is possible that the CPI next April will be lower than last month’s, but that won’t mean we’re in a deflationary cycle.

Inflation in construction is a bit more panic-worthy. the dynamics of supply and demand are consistent with what we’re seeing in consumer prices but are exaggerated because manufacturing has been recovering for nearly nine months. the change in PPI for copper year-over-year is 49%, for steel it’s 67%, for lumber it’s 85.7%, and for diesel fuel it’s 126%. Scrap prices for iron, steel, and copper range from 77% to 79% higher than April 2020. Of the dozens of categories of materials tracked by the AGC, another 14 experienced double-digit increases. But, of all these categories, only lumber seems to be in danger of a long-term, secular shift in supply. And even lumber is likely to see prices fall back again in late summer, although probably not to the $460/thousand board foot levels of September 2020. Since May 10, in fact, the price has dropped 27%.

Inflation will recede as production catches back up to demand going into 2022. In the meantime, higher prices will cause construction projects to go on hold or to be cancelled. That’s not good for an industry in recovery but that trend will also reduce demand and hasten the point of equilibrium between supply and demand. The 9.5% drop in housing starts in April is an indicator that the shortage and price of lumber is already denting new residential construction.

Construction projects moving ahead in Pittsburgh despite the higher inflation include the $22 million Clairton Wastewater Treatment Plant Phase 2, which bids July 12, and the $25 million renovation of Verizon Wireless’s Bridgeville center. Walsh Construction is the CM for Verizon Wireless. New-Belle Construction started work on the $5 million Fossil Industries new facility in Hempfield Township. Rycon Construction was the low bidder on the $11 million Rolling Hills Aquatic Center in Peters Township. Dick Building Co. was awarded the contracts for new GetGo Stores in McKeesport and McKees Rocks. MBM Contracting will be the contractor for the buildout of Goehring Rutter & Boehm’s space in 525 William Penn Place. C.H. Schwertner & Son started construction on the new Target store at the Kaufmann’s Grand on Fifth. BRIDGES & Co. is building the new $3 million Dialysis Clinic Inc. facility on Perry Highway in McCandless. Extra Storage Space selected Brackenridge Construction for its $6.5 million, 65,000 square foot expansion in Homewood.

 

A Week of Mixed News for the Pittsburgh Construction Market

The title of this post is a bit misleading. The past week was something of a tidal wave of good news that was doused by one bit of very bad news. Rather than burying the lede, let’s start with the bad news: U.S. Steel cancelled its billion-dollar upgrade to the Mon Valley Works. The project involved a $250 million cogeneration plant at the Clairton Coke Works and a billion-dollar new rolling mill at the Edgar Thomson Works in Braddock. You can read the labor/industry reaction here and some of the environmentalists reactions here, or read some of both here. For the construction industry, the project’s end means the loss of about 1,000 construction jobs over the next two years. There are lots of other mega projects in the pipeline, so those jobs lost might not be felt; however, the decision to cancel the project sends a chill through the Mon Valley. There is a precedent for that.

U.S. Steel’s CEO, Dave Burritt, said the right things when announcing the decision. He took a couple shots at the state and county for dragging out permitting but mainly blamed the changing global markets and need to de-carbonize as the drivers of the decision. He also committed to steel-making in the Mon Valley. For residents who lived in the Mon Valley in the 1980s, that probably sounds eerily similar to what David Roderick said then about the mills that were closed a few years later. Perhaps the outcome will be different. It is quite feasible that Burritt will be standing in Braddock in a year or two announcing that conditions allow for reinvestment after all, or at least announcing a smaller-scale reinvestment. Regardless of what the future holds, the decision isn’t great for construction or the economy in the Mon Valley.

Now on to the good news. The big news last week was the first estimate of gross domestic product (GDP) growth, which was an annualized 6.4%. Revived demand, driven by vaccinations and government checks, pushed consumer spending and business investment much higher than expected. Consumers increased spending by 10.7% and business investment jumped 9.9%. The latter is especially encouraging because business investment had been steadily falling since mid-2019 in anticipation of an end to the cyclical boom in 2020 or 2021. COVID-19 was not what businesses were anticipating. The U.S. government’s responses, especially since the end of 2020, have allowed businesses to keep dry powder and consumers to boost personal savings rates to 27.6%. Stocks are at record levels, so publicly-traded corporations also have lots of working capital in reserve. After the sharp rise in the first quarter, total GDP stands just 1% below the record-high levels of the end of 2019.

Economists seem to think that good economic news was going to shoot construction much higher in March than what occurred. The Census Bureau report on total U.S. construction spending came out May 3. It showed spending was basically flat from February to March, rising only $4 billion to $1.513 trillion. Economists had forecasted an increase of 1.2%. The rationale for the increase must have been tied to the robust economic growth in the first quarter but such an increase was unlikely given the lead time needed for construction and the dampening impact of the supply chain disruption. That disruption is causing significant delays and inflation that has slowed construction activity. Demand for construction is probably closer to the growth expectations, but it’s unlikely that construction will reach the levels that demand is driving until the third quarter.

Construction activity in Pittsburgh is noticeably higher. Following an unexpected $1.39 billion in first quarter construction contracting, the pace of bidding and construction starts has not slowed through April. New project announcements keep coming. Architects are busy and struggling to hire staff. Bidding is still very competitive, as contractors are anxious to line up work now after nine months or more of difficult backlog building. Mosites Construction was the low general on the $12.7 million Port Authority LRT station platform renovations. Liokareas Construction was the low general on Gateway School District’s $30.4 million middle school addition and alteration project. Mele & Mele & Sons were the low bidder on the $30 million Center Township wastewater treatment plant modernization in Beaver County.

Monroeville VA Outpatient Clinic. Rendering by Plunkett Rayisch Architects

Summit Smith Development announced this morning that it had been selected by the Veterans Administration to build a new $91 million outpatient facility at the Monroeville Mall. C.D. Smith Construction from Milwaukee is the construction manager. Developer Craig Rippole is teaming with Michael Keaton to help Nexii Building Solutions build a 200,000 square foot plant in the Pittsburgh area. No site has been chosen. Rycon Construction was selected as CM for Duquesne University’s $54 million College of Osteopathic Medicine. Tree of Life announced it had hired architect Daniel Libeskind (working with Rothschild Doyno Collaborative) on its $20 million renovation. The Tree of Life is taking CM proposals from A. Martini & Co., PJ Dick, Jendoco, Mascaro, Massaro, and Mosites on May 7. Hudson Group from Sharon brought the $30 million Julian Apartments on Melwood Avenue before the Planning Commission. Mistick Construction started work on the $10 million Granada Square Apartments in the Hill District.

Construction Economic Rebound in March: Vaccines, Jobs, and Manufacturing

Good Friday began with good news from the labor market. The monthly Employment Situation Summary was released by the U.S. Census Bureau and it showed that employers had added 916,000 jobs in March, the largest increase since August 2020. The gains in employment were spread across the spectrum, with the largest increases in hospitality (280,000) and construction (110,000). Unemployment decreased to 6.0 percent, with 9.7 people unemployed. That’s 4 million more unemployed than at the peak in February 2020. A total of 8.4 million fewer people were working in March 2021 compared to February 2020, meaning that 4.4 million people are no longer in the workforce. Although a portion of those who left the workforce have retired, the largest share of those out of the workforce (most of which are women) are likely to need to be re-employed once the slack in the economy has recovered. The three-month average for job creation suggests that the pace of hiring is accelerating rapidly but would need to continue for 15 months to two years to return to the same level of employment that existed pre-pandemic. Should the March pace continue, that level would be reached at the start of 2022.

Whether the March pace continues is largely a function of how quickly vaccines can be distributed to herd immunity and how well the virus spread can be contained. The current trajectory for vaccination indicates that vaccine supply will outstrip demand in May. The pace of virus spread, however, suggests less optimism. Infections are growing at an alarming rate in northern and midwestern states that have relaxed limitations on public gatherings. In virtually every one of those states there have also been an decline in mask wearing, even though mask requirements have not been removed. The economic progress that has occurred in February and March is likely to be stalled in April or May if the pace of infections remains on the current trajectory. That’s not a prediction so much as an observation of similar periods of relaxation and COVID fatigue that occurred in late summer and during the holidays. COVID-19 has proven to be easy to forecast, with very consistent outcomes following increases and decreases in infections. The good news in spring 2021 is that vaccinations should shorten whatever spike occurs and the economic momentum should rebound quickly if a slowdown follows in the coming month or two.

New hiring increased again in March following the holiday slowdown.

There were other reports on the economy’s rebound this week. On April 1, the Institute for Supply Management (ISM) said its index of national factory activity jumped to a reading of 64.7 last month from 60.8 in February. That was the highest level since December 1983. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists had forecast the index rising to 61.3 in March. The survey’s manufacturing employment gauge shot up to its the highest reading since February 2018. The ISM survey also found significantly more firms hiring than not. The outplacement company, Challenger, Gray & Christmas, showed planned layoffs by U.S.-based companies dropped 11% to 30,603 in March, the fewest since July 2018. Through the first quarter planned layoffs plunged 35%, compared the October-December period. At 144,686, job cuts last quarter were the fewest since the fourth quarter of 2019.

Industrial construction in Washington County was boosted by the start of construction of HW70, a 28,200 square foot spec warehouse in Bentleyville, and Aragra’s new 50,000 square foot facility in Starpointe Business Park. W. K. Thomas & Associates is building the Aragra facility. Rycon Construction was the low general contract bidder at $11.5 million on the $17.5 million Hillman Library Phase 3 at Pitt on Wednesday. TEDCO was successful on the new $2 million PNC branch on Broadhead Road in Moon Township. Arco/Murray Construction is taking a 35,000 square foot expansion and renovation of Frito-Lay’s facility in Thomson Business Park through the entitlement process Cranberry Township. Jendoco Construction started work on the $10 million Distillery on the South Side. Two multi-family projects got underway in March in the city. Elford Construction started work on RDC’s $60 million 334-unit Brewer’s Block Apartments and PMC Property Group began renovating the Allegheny Building into 177 apartments. Continental Building Co. started construction on the first 78,000 square foot building at Elmhurst Innovations Center.

Construction Inflation Worries: It’s a Matter of Timing

During the debate over the American Relief Plan, fiscal conservatives raised the worry that adding so much stimulus into the economy was a risk for overheating the economy and triggering inflation. Coming on the heels of a year in which gross domestic product (GDP) fell 3.5% (and almost 10 million people remain unemployed), a little overheating is probably not the most sellable worry. At the same time, there are signs that unusual inflation levels could be on the horizon. There isn’t much question in my mind that the relief included in the $1.9 trillion package was needed to get the U.S. economy to the other side of the pandemic later this spring or early summer, but there are positive indicators already that the economy is bouncing back. Government stimulus, whether in the form of direct payments or monetary policies like quantitative easing, are meant to be oxygen for the economic fire. If the aid ends up being gasoline instead, particularly in an environment that continues to have supply restraints, demand for goods and services can get so far ahead that raising prices is unavoidable. That’s a real concern and evidence of such overheating is widespread in the construction industry.

As Congress was debating the ARP, the Bureau of Labor Statistics released its inflation report for February. You can view a helpful table of key materials done by the AGC here. The headlines weren’t shocking but the overall producer price index (PPI) jumped 2.8% year-over-year. PPI growth for most construction-related indexes was relatively tame (the PPI for nonresidential buildings was at 1.2%) but there are smatterings of runaway inflation in several key materials. Industrial metals, especially steel, have seen big increases, as has diesel fuel. We’re talking about jumps of 20% to 45% year-over-year. Looking at the underlying causes of the inflation should calm your nerves. Manufacturing capacity was cut back last year and manufacturers let inventories run down. As production has been heating up in recent months, capacity utilization has climbed back to pre-pandemic levels for many basic industries. When the economic recovery kicks in higher gear in a few months, capacity would be swamped but manufacturers have already begun reopening plants. By the third quarter’s end, there is likely to be an excess capacity again in steel, aluminum, and fuel.

That’s good news, unless you have to price and procure a major project right now. The key worry about inflation at the moment is that out-of-whack supply and demand could produce pricing that breaks the budget on projects trying to get out of the starting gate this spring. Some of the projects won’t be able to get out of the way of the short-term spikes. For owners looking to get out of the ground in later 2021, don’t be hasty about the springtime budgets. There is no guarantee that prices will moderate by fall but it’s more likely that today’s prices will be higher than after mid-year.

The outlook for long-term inflation hasn’t much changed since last year. Fed Chair Jerome Powell tried very hard to express the central bank’s caution about raising rates too soon on Wednesday. He made a very good point about growth, which was that if interest rates are hiked earlier than expected because economic growth (especially job growth) is stronger than expected, that will be a good thing. Fears of inflation of the kind seen in the 1970s are otherwise unfounded. There are big differences in how the global economy works in the 2020s, most notably that the economy is global. Spikes in demand or supply shortages can be met by corporations across the world. That wasn’t the case in 1975. Materials that have tended to drive inflation spikes – industrial metals, oil, and gas – are in long-term secular oversupply cycles. Productivity is likewise less likely to balloon today. Fifty years of technology advances have leveled out the productivity gains that have pushed wages in the past. Inflation is a risk to the economy but, at the moment, a far lesser risk than the public health crisis.

Pittsburgh’s construction industry is rapidly heating up. The industrial market continues to expand. Miller-Valentine Group has started construction on the $15 million warehouse at Westport Woods for NorthPoint Development. Stefanik Properties LLC has started site work on the 150,000 Stefanik Industrial Park in Center Township, Beaver County. The $33 million Gateway Middle School project is out to bid. Elizabeth Township Municipal Authority awarded Mele & Mele & Sons $19.8 million in contracts for new pump stations. TBI Contracting has started work on the new $2.6 million Frontier Railroad HQ in Charleroi. Massaro Corp. was selected to renovate the 20th floor at Highmark’s headquarters. Mosites Construction will be the contractor for the $5 million renovation of The Depot in Tarentum. UPMC is taking proposals from Mascaro, Massaro, PJ Dick, Rycon, Turner, and Whiting-Turner on the $25 million Children’s Hospital Heart Vascular Institute. A. W. McCay is renovating Fox Chapel Plaza for the $2.5 million Goldfish Swim Club. Yarborough Development was awarded the $1.6 million Norwin High School Aquatic Facilities renovation.

A Good Week for the Economy and Pittsburgh Construction Market

Let’s start with the bad news. The number of people filing for first-time unemployment compensation continues to be high. Even as many other metrics of the economy are turning higher quickly (see below), unemployment claims remain stubbornly high. Last week’s total was down substantially from the week before, to 720,000, but the number of those on unemployment and extended unemployment stayed above one million for the week.

Now for the better news. Friday’s Employment Situation Summary (i.e. the monthly jobs report) was a big surprise to the upside. Here’s an excerpt from the National Outlook column from the upcoming March/April BreakingGround:

Employers added 379,000 jobs in February, boosted by a gain of 355,000 jobs in leisure and hospitality hiring and the decline in infections. That bodes well for a strong recovery mid-year if recent loosening of mitigation measures does not trigger another surge in infections in spring. Among the nuggets of information below the headline: the number of people working from home due to the virus outbreak declined by 0.6 points; labor force participation remained weak at 61.4 percent; and the number of people reported not working because their employer closed due to the pandemic fell by 1.5 million to 13.3 million.

Economic news is better because the outlook for the pandemic is better. More than 2 million new vaccines were administered on 3 different days last week, bringing the 7-day rolling average to just below 2 million per day. That pace is advancing even as the manufacturing of vaccines is still in the ramp up stage. The other big driver of optimism is the passage of the $1.9 trillion American Relief Act, which passed Congress today and will be signed shortly by Pres. Biden. The bill includes $1,400 direct payments to people making less than $80,000 per year (or $160,000 as a couple), funds more COVID vaccine distribution, and provides a $3,600 child credit for 2021. Economists watching the progress have significantly upped forecasts for growth this year, with some (like Goldman Sachs) predicting GDP growth of 6%. Those more upbeat forecasts rest primarily on the fact that the U.S. consumer’s life is going to get much better if the current arc of things continues. With 70% of GDP coming from consumer spending, the charts below demonstrate why the bolder predictions seem plausible. Personal savings are up. Wealth was conserved (and mostly increased) during the pandemic. And those with the greatest need for assistance are about to get it. There are long-term risks associated with the amount of government borrowing and spending that has been required to support the economy for the past year. If, as many predict, Americans respond to returning to something like normal later this year, inflationary pressures could arise and put pressure on the economy in 2022. For now, those concerns are on the back burner.

Pittsburgh’s construction economy had begun feeling this optimistic outlook a bit before last week, but last week was a good one for the market too. Ahead of reviewing its Institutional Master Plan with the Pittsburgh Planning Commission, the University of Pittsburgh moved several of its $100 million projects off the back burner. Two of the major projects on the upper campus, which Pitt is calling Victory Heights, will begin moving forward again. The Chilled Water Plant, which will be built by Turner/Mosites, will get a guaranteed maximum pricing round within the month and is scheduled to start construction in September. The Human Performance Center, for which Massaro/Gilbane is the CM, will be designed over the next year or so, with construction in fall 2022. Construction is expected to start in October 2021 on the Hillside Student Housing and Garage, which Mascaro Construction will build. Mascaro is also CM for the Student Recreation and Wellness Center that should begin in spring 2022.

In other college project news, Mosites Constrution took bids on the $45 million Forbes Beeler dormitory at CMU. Duquesne University short-listed Rycon Construction and PJ Dick as CM finalists for the $50 million College of Osteopathic Medicine. Turner Construction was awarded the $8 million Google third floor renovation at Bakery Square. Shannon Construction was selected for the $3.8 million TI for Intervala at RIDC Westmoreland. F. J. Busse Co. will build out the new $1.5 million Huntington National Bank branch in the Strip District. Landau Building Co. was awarded the new Bank of America branch in Bridgeville. AIMS Construction was selectedfor the $1.2 million Africana Studies renovation at Pitt. Wyatt Inc. announced that it will build a new 120,000 square foot millwork manufacturing facility in South Huntingdon Township, Westmoreland Co. Whiting-Turner started construction on the 120,000 square foot buildout of the Goodblend cannabis facility at the Northside Commerce Center. Whiting-Turner also took bids on a $100 million buildout for Krystal Labs in Moon Township. Massaro Corp. was selected as CM for the $50 million Fifth & Dinwiddie West development in the Hill District. Rocky Bleier Construction Group started work on the $5-8 million Richard G. Laube Cancer Center expansion at Armstrong County Memorial Hospital.

In the public sector the airport’s Terminal Modernization Program got a kick start with the release of an $85 million steel and concrete decks package, due April 14. The Port Authority also released a $17 million Light Rail Transit Station renovation program, due April 1.

Digesting Economic News for the Pittsburgh Construction Economy

Friday will bring the first jobs report on 2021. The January Employment Situation Summary is expected to show modest job gains. If today’s report on January private payrolls from ADP is an indication, the number of jobs created is likely to be above the consensus estimates. After December’s dip in employment, economists were expecting 49,000 additions to private payrolls in January but ADP reported a bump of 174,000 jobs. First and foremost, that’s good news. The late 2020 surge in infections and hospitalizations that followed the Thanksgiving holiday brought fresh rounds of restrictions and, more important, resulted in people voluntarily avoiding places where people gathered. That was bad news for bars, restaurants, airlines, hotels, etc. A rebound from that suppressed demand was expected and, to the degree the bounce back overshoots expectations, it’s good to have job creation recovering ahead of the vaccination rollout.

Last week, the first reading on GDP for the year was released by the Commerce Department. It showed that output declined by 3.5% in 2020. That estimate will be updated two more times but most economists don’t expect much to change. The decline was the steepest since 1946, when the U.S. was retooling industry from wartime to peacetime production. The disruption to the economy in 1946 was different than the pandemic of 2020, but there are similarities in that the dropoff was caused by non-economic factors. That provides additional optimism about the recovery in 2021, as there was less destruction of wealth and capital after the pandemic hit, which will give fuel to the rebound later this year.

The improving economic conditions match up to the increased levels of activity from tenants in commercial real estate, including a number of large space requirements in the market; and it helps explain the increase in design activity at regional architectural and engineering offices.

The Airport Authority announced some very good news in its Blue Sky email Tuesday. Last year’s delay of the $1.1 billion Terminal Modernization Program allowed architects and engineers time to produce 90% design documents by the end of January. Construction documents will be completed as bid packages are prepared but the construction management team of PJ Dick/Hunt and Turner will be releasing bid packages in March for the next phase, which is the multi-modal transportation center. The terminal project’s progress is good news for the Pittsburgh construction market, which should see another mega project, UPMC’s Heart and Transplant Hospital, get into the market in late 2021. With the proposed billion-dollar modernization of the US Steel Mon Valley Works on hold, these two mega projects will be major job creators in 2022 and beyond.

PIT’s Terminal Modernization Program Ready to Move Ahead

In other construction news, Suncap Property Group is moving ahead rapidly with its two proposed industrial developments. Graycor Construction has started construction on a 278,000 square foot distribution center in Findlay Township. Meridian Design Build will begin work on a 220,000 square foot distribution center – rumored to be for Bayer Healthcare – at the Victory Business Park in Clinton Township, Butler County. Bids will be taken February 5 for Duquesne University’s new osteopathic medical school. Contractors bidding the project are Jendoco, Massaro, PJ Dick, Rycon, and Turner. Construction is not expected to start until end of 2021.

More Signs of Thawing: Pittsburgh Construction Market 2021

Let ‘s start this optimistic post off with a dash of bad news. Even as vaccines begin to be administered worldwide, the surging rate of infections and hospitalizations are dampening the economic recovery from COVID-19. Last month, retail spending fell 1.1% from October, which was down 0.1% from September. The Commerce Department report from December 16 showed weakening across most retail categories. This morning, initial claims for unemployment jumped much higher to 885,000, marking the second week in a row above 850,000 claims and the fourth week in six with an increase from the previous week. Vaccines will help bring down the terrible human toll over the next few months. It’s going to take government intervention to reduce the economic toll until the vaccines do their job. The pandemic aid legislation being negotiated in Congress now is critical to extending the bridge to the end of the pandemic.

The fact that the end of the pandemic seems to be in sight is helping owners make decisions to proceed with construction projects. Bidding is still very light, although that could be a function of the holiday season as much as the economic outlook. Permits for new construction have picked up and contracts are being awarded for projects that had been on hold. Some, like Millcraft’s $60 million new hotel at the Rivers Casino, are projects that were about to start. Others, like the airport Terminal Modernization Program, were still in the design stage. Massaro Corp. is expecting to re-start construction on the casino hotel by the end of the first quarter. Preparation for the airport project should resume and the next major structural bid packages should go out to bid mid-2021. You can read about the agreement with airlines to fund 2021 operations at Blue Sky News.

Commercial real estate is seeing the most thawing. That may be a surprise, given that hospitality and office properties have been greatly impacted by the pandemic and vacancy rates are rising nationally (see below); however, the local developers are bullish on Pittsburgh’s post-COVID economy and are investing through the downturn. In addition to its joint development with RDC on the Vision on 15th, Burns Scalo Real Estate has authorized NEXT Architecture to design a 150,000 square foot first building in the Diamond Ridge development in the Parkway West Corridor. Elmhurst Group’s purchase of land for the Elmhurst Technology Center was approved by the URA. Continental Building Co. will build the 175,000 square foot tech flex center. Planning commission approved a new design for the $200 million 1501 Penn Avenue office building, to be built by PJ Dick/Dick Building Co. joint venture. That project still needs an anchor tenant before construction proceeds.

Source: CoStar, Wells Fargo Securities

The industrial market has already thawed. Take a preview peak at the Regional Update from the upcoming BreakingGround for January/February.:

“It’s not a surprise that industrial development is continuing to add new product. After the addition of roughly one million square feet of distribution space during the past two years, occupancy remains nearly full for Class A warehouse. Amazon is the poster child for the boom in distribution and fulfillment centers. The ecommerce giant recently signed a lease for 300,000 square feet at the former Sears Outlet in Lawrenceville and is reported to be the user for the 850,000 square foot center being planned by Hillwood Properties at the former Westinghouse Research Center in Churchill, and a 278,000 square foot distribution center proposed by Suncap Development in Findlay Township. Additional large distribution centers are in the pipeline throughout the region for other users as well. Since the fall the 400,000 square foot Clinton Commerce Center Building 5 been started, along with the first 150,000 square foot building at Hempfield Commerce Center. Suncap also purchased land to develop a 250,000 square foot distribution center, likely a build-to-suit, at the Victory Road Business Center in Butler County. Other large users of warehouse space are in the market but have not announced site selections as the year ended.”

Even at the smaller end of the spectrum, industrial activity is up. W. K. Thomas & Associates purchased land in the Victory Road Business Park to build a 25,000 square foot warehouse. W. K. Thomas is also building a 225,000 square foot expansion of the Altmire Trucking facility in Eau Claire, PA.

In other construction news, Amazon’s lease at the Sears Outlet unfortunately cancelled the planned $25 million conversion that Rycon Construction was scheduled to do. Rycon was awarded the $8 million Light of Life Mission expansion and renovation. Turner Construction was awarded the $3.2 million UPMC Passavant Cranberry lobby renovation and a $2.5 million fitout for Curology. Allegheny Health Network selected A. Martini & Co as CM for the $1.2 million Urgent Care Center at Suburban General Hospital. Landau Building Co. was selected as as CM for the $1.8 million AGH Emergency Dept. CT Scanner. Volpatt Construction was awarded the $1.25 million AGH hybrid operating room.

More Data Points for the Building Recovery

There is no question that the state of the economy is a mixed bag as 2020 winds down. This week will see the release of a number of key economic metrics, including the monthly jobs report on Friday morning. Thursday morning, the data on unemployment claims has good news, relatively speaking. During the week of Nov. 28, there were 712,000 new claims for unemployment insurance. That’s terribly high compared to anything like normal but it’s a 75,000 claim decline from the previous week, and a reversal of the recent trend of accelerating claims. There were 350,000 fewer persons receiving any form of unemployment insurance, another positive step. For perspective, however, it’s worth noting that the 20.16 million people on unemployment last week compares to 1.5 million one year earlier. Clearly lots of ground to make up.

Source: US Department of Labor

The Institute for Supply Management (ISM) released two important purchasing manager indexes (PMI) this week. The November PMI fell slightly to 58 for manufacturing companies but remained well above the slow growth line. New orders index jumped to 65.1%, a very good forward-looking sign. The ISM Non-Manufacturing Services Index was also solid at 55.9%, down slightly from October but above 50 for the sixth consecutive month. Wednesday’s ADP Payrolls report was not as cheery. Private non-farm employers added 307,000 jobs in November. That’s a continuation of the slowdown in hiring since late summer. Economists expected a slightly higher figure but the data fits in with the overall trend that appears will be unchanged until evidence that the vaccine rollout is loosening up activity.

One other area of concern with respect to new hiring is the Federal Reserve Bank’s most recent Beige Book responses from employers regarding hiring. Businesses were overwhelmingly reporting improved conditions but a far smaller share were expecting to hire back to pre-pandemic levels once the COVID-19 threat recedes. The most common reply was that businesses have learned to do more with fewer people. Should that sentiment prevail once activity accelerates, the recovery will be slower.

Regional construction activity has picked up, although much of the progress is in anticipation of the pandemic receding in the spring, which means that construction is not likely to return to higher levels until the second quarter. ALCOSAN released its $110 million East Head Works project for bid, due Feb. 17. Permits were issued to Sota Construction for the $5 million Hazelwood Brewing Building renovation and to Mosites Construction for the $2.5 million Brashear Community Center renovation. Oxide Development/Schiff Capital presented its 114-unit, $20 million 32nd & Penn Apartments to the Pittsburgh Planning Commission. Rycon Construction is the CM. The planning commission also reviewed plans for the $2-3 million conversion of the Triangle Building into residential, which Franjo Construction will build. A. Martini & Co. was selected for the $6 million next phase of the Hunter Building restoration in Wilkinsburg. E. E. Austin was the successful bidder on PSU Behrend’s $5.5 million Federal House addition in Erie. Penn State also selected ZGF Architects for its $146 million new Physics Building and Osmond Building Renovation. Mele & Mele & Sons announced it was building a new 38,000 square foot headquarters and shop at the RIDC Duquesne site. ATI announced $85 million in cpaital improvements to its Vandergrift stainless mill.