U.S. Economy Contracts at Record Rate in Second Quarter

By Richard Branch, Chief Economist

The Bureau of Economic Analysis reported today that the U.S. economy contracted at a 32.9% annualized pace in the second quarter. This is the sharpest quarterly decline in GDP going back to 1947 when quarterly figures were first tracked. This was largely in line with our expectation of an annualized 33.4% contraction.


Declines in consumer spending and business investment were dramatic in the April to June quarter, although there was a slight uptick in business investment in computer equipment, perhaps as firms outfitted their employees for an extended out-of-office work schedule.

On the plus side, government spending provided a mild boost in the quarter as federal nondefense spending accelerated. State and local expenditures fell, however, as they came to grip with rapidly declining tax revenues and higher costs associated with COVID-19 preparations.

Today’s report does little to change our viewpoint that the U.S. economy is in recovery mode following the sharp contractions in March and April. Business activity has certainly picked up as the reopening process began, leading to job gains in both May and June. However, the nascent recovery is at risk as the number of COVID cases continues to climb.

In a separate report today the number of initial claims for unemployment insurance (UI) rose to 1.434 million – the second consecutive weekly increase. Should states and local areas add restrictions in an effort to quell the virus the number of workers seeking aid will surely rise. As the expanded UI benefits provided under the CARES Act are set to expire, with an uncertain outlook for their renewal, this will limit the consumer’s ability to fully contribute to growth and lead to a slowing economy in the coming months.


COVID-19 Crushes Construction Starts in Most Metro Areas During First-Half 2020

New York and Washington DC top the list despite sizable declines in construction

NEW JERSEY — July 22, 2020 — The COVID-19 pandemic and resulting recession have wreaked havoc on U.S. building markets. Commercial and multifamily starts were quite healthy during January and February but stalled as the pandemic hit the nation in March. For the first three months of 2020, U.S. multifamily and commercial building starts inched up 1% from the same period of 2019. The commercial and multifamily group is comprised of office buildings, stores, hotels, warehouses, commercial garages, and multifamily housing. Not included in this ranking are institutional building projects (such as educational facilities, hospitals, convention centers, casinos, transportation terminals), manufacturing buildings, single family housing, public works, and electric utilities/gas plants.

The full force of the pandemic bore down on U.S. construction starts in April as economic activity virtually shut down and local restrictions on construction took effect. Construction resumed in some areas in May allowing starts to post a mild gain over the month. Advances continued in June. However, the damage to commercial and multifamily construction during the first half of the year was palpable. Starts plunged 22% below the first half of 2019, with only warehouse construction posting a very small gain. Commercial and multifamily construction starts in the top 20 metropolitan areas posted a similar drop of 22% through the first six months of 2020.

In the top 10 metro areas, commercial and multifamily starts slid 21% and only one metro area posted an increase. The New York metro area held on to its top spot, despite falling 24% below year-ago levels to $11.5 billion. Washington DC held to second place even though commercial and multifamily construction starts fell 42% to $4.2 billion. The Dallas TX metro area rounded out the top three, with commercial and multifamily activity dropping just 2% to $3.8 billion. The remaining markets in the top 10 were Los Angeles CA (-18% to $3.3 billion), Chicago IL (-9% to $3.0 billion), Boston MA (-31% to $3.0 billion), Miami FL (-16% to $2.8 billion), Phoenix AZ (+82% to $2.8 billion), Austin TX (-12% to $2.4 billion), and Houston TX (-38% to $2.4 billion).

Among the second-tier (ranked 11-20) metro areas, commercial and multifamily starts plummeted 25% with just one metro area posting an increase. The second tier metros include Atlanta GA (-32% to $2.4 billion), Philadelphia PA (-25% to $2.1 billion), Seattle WA (-26% to $1.6 billion), Orlando FL (-28% to $1.3 billion), Nashville TN (-45% to $1.3 billion), Portland OR (-33% to $1.1 billion), Denver CO (-15% to $1.1 billion), Kansas City MO (-20% to $1.1 billion), Tampa FL (-19% to $941 million), and Detroit MI (+96% to $929 million).



“The COVID-19 pandemic and recession have devastated most local construction markets,” stated Richard Branch, Chief Economist for Dodge Data & Analytics. “Across the board, building projects have been halted or delayed with virtually no sector immune from damage. Construction starts have begun to increase from their April lows and there is cautious optimism that as the year progresses construction markets around the country will begin a modest recovery. However, the recent acceleration of COVID-19 cases in the South and West as well as the upcoming expiration of expanded unemployment insurance benefits (from the CARES Act) puts the recovery at significant risk and could undermine the construction sector’s ability to grow.”

During the first half of 2020, commercial and multifamily starts in New York NY fell 24% to $11.5 billion relative to the first six months of 2019. Commercial starts were 18% lower, a relatively sanguine decline given the almost two-month ban on nonessential construction in the city. However, the modest impact on construction was due to the start of two very large office projects that broke ground in February — the $1.3 billion Two Manhattan West office building and the $760 million Disney/ABC Headquarters. Removing those two buildings would have resulted in a 50% decline in commercial starts during the first half of the year. Multifamily starts dropped 29% in the first six months of the year. The largest multifamily projects to get underway were the $420 million Hunter’s Point South mixed-use project in Long Island City NY and the $260 million 451 10th Ave. apartment building.

In Washington DC, commercial and multifamily starts fell 42% to $4.2 billion during the first half of 2020 relative to the same period of 2019. Multifamily starts lost 27% over this year’s first six months. The largest multifamily projects were the $150 million Ripley II–Solaire Apartments in Silver Spring MD and the $150 million Storey Park mixed-use building in Washington DC. Commercial starts fell 50% during the first half of the year, with the only gain coming from the hotel sector, which posted a $67 million gain (38%) over 2019. The largest commercial project to break ground in the Washington DC metro was the $306 million Aligned Energy Data Center (Building II) in Ashburn VA. Amazon Inc. also broke ground on two buildings associated with the HQ2 project in Arlington VA, each totaling $240 million.

Commercial and multifamily starts in the Dallas TX metro area hit $3.8 billion in the first six months of the year, a decline of just 2% from 2019’s first half. Multifamily starts gained 8%, one of the few top metros to post a gain in this market. The largest multifamily projects to get started in the first six months were the $75 million Novel Turtle Creek residential tower in Dallas TX and the $65 million Shannon Creek apartments in Burleson TX. Commercial starts fell 6% in this year’s first six months, with declines in hotel, office, and parking structures partly offset by gains in retail and warehouse starts. The largest commercial projects were the $136 million Epic Deep Ellum (building II) in Dallas TX and the $100 million American Airlines flight kitchen (food service is considered part of the retail sector).

Los Angeles CA commercial and multifamily starts dropped 18% during the first six months of 2020 to $3.3 billion. Commercial starts fell 9% on a year-to-date basis, with strength coming from the office market which posted a large gain. That gain, however, was not enough to offset declines elsewhere in the commercial space. The largest commercial projects to break ground during the first half of 2020 were the $355 million Fig + Pico AC Marriott/Hilton hotel in Los Angeles and the $240 million first phase of the Iceberg Tower office project in Burbank. Multifamily starts were down 26% over the same time period. The largest multifamily projects to start during the first half of the year were the $95 million 3535 W 8th St. mixed-use project in Los Angeles and the $93 million First Point residential building in Santa Ana CA.

Commercial and multifamily starts in Chicago IL were 9% lower on a year-to-date basis through June, reaching $3.0 billion. Commercial starts increased 24% on the strength of a near-doubling in office starts as well as an increase in hotel construction that more than offset steep declines in retail, warehouses, and parking structures. The two largest commercial projects to get underway in the first six months of 2020 were the $476 million BMO Office Tower and the $360 million Wolf Point South Tower B, both in Chicago. Multifamily starts in 2020 were 44% lower than in the first half of 2019. The largest multifamily structures to get started were the $150 million 354 N Union apartments in Chicago and the $100 million Maple Street Lofts in Mount Prospect.

During the first half of 2020, commercial and multifamily starts in Boston MA declined by 30% to $3.0 billion. Multifamily starts dropped 10% on a year-to-date basis. The largest multifamily projects to get underway were the $150 million Cambridge Crossing (Parcel I) complex in Cambridge MA and the $115 million Woburn Avalon Bay project in Woburn MA. Starts on the commercial side fell 43% with all commercial sectors except warehouses posting a decline. The largest commercial projects were the $450 million first phase of the South Station Office Tower and the $250 million Seaport Square/400 Summer Street office building, both in Boston.

Miami FL commercial and multifamily starts fell 16% year-to-date through June to $2.8 billion. Multifamily construction was 11% lower over the same time period. The largest multifamily projects to break ground in the first six months were the $249 million Downtown 5th Luxury Apartments in Miami and the $115 million Miami Urban Village apartments in Homestead. On the commercial side, starts were 22% lower, with warehouse starts the only sector to post a gain year-to-date. The largest commercial projects were the $80 million Pier Sixty-Six Hotel and a $67 million Home Depot distribution center.

Commercial and multifamily construction starts in Phoenix AZ bucked the national trend posting a sizeable 82% increase to $2.8 billion during the first half of 2020 relative to the same time frame in 2019. The increase was fueled by the start of some sizeable projects. Multifamily starts rose sharply, jumping 85%. The largest multifamily projects to get started were the $300 million Pier 202 mixed-use building and the $125 million Adeline Residences at Collier Center, both in Tempe. Commercial starts meanwhile rose 79%. The largest commercial projects were the $200 million 100 Mill Ave office development and the $115 million Park 303 warehouse building.

Year-to-date commercial and multifamily construction starts in Austin TX fell 12% through June to $2.4 billion. Multifamily starts increased 21% in the first half of 2020, boosted by the $150 million 44 East Condo Tower and the $120 million Hanover Republic Square apartment building. Commercial starts fell 28% during the first six months despite sizeable gains in warehouse and hotel starts. The largest commercial projects were the $300 million Project Charm Amazon distribution center and the $89 million Capitol Complex Office Building.

Completing the top 10 for commercial and multifamily construction starts was Houston TX where starts were 38% lower at $2.4 billion through the first six months of 2020. Multifamily starts posted a 38% decline through June. The largest multifamily projects to break ground were the $217 million Hanover Square & Bayou Apartments as well as the $70 million Boone Manor Apartments. Commercial starts also fell 38% during the first six months of the year, with only parking structures posting a gain. The largest commercial projects to start were the $100 million Hewlett Packard Enterprises Campus @ Cityplace and the $58 million Empire West Business Park.




Labor Market Continues to Heal

By Richard Branch, Chief Economist Dodge Data & Analytics

The U.S. economy added back 4.8 million jobs in June, well above expectations of 3.0 million. June’s addition follows a gain of 2.7 million in May (revised up from 2.5 million). Private sector employment improved by 4.8 million while the government sector added just 33,000 new positions. The unemployment rate fell to 11.1% from 13.3% in May. Questions raised about the April and May jobs reports (that furloughed workers were not classified as unemployed thereby lowering the unemployment rate) appear to have been somewhat mitigated in June.


Employment in the construction sector improved by 158,000 positions. Jobs in building construction increased by 32,000, while specialty contractors added 135,400 positions. Heavy and civil employment fell by 9,700 positions.  With June’s data the construction sector has added back more than half of the jobs lost in March and April.

While certainly a positive sign that the U.S. economy is in recovery, the survey was undertaken before new flare-ups of the virus in Texas, Florida, California and other states. It therefore does not reflect the new business shutdowns mandated by state and local governments in these areas. Should the number of new cases continue to accelerate in the weeks to come, and business closures expand, it raises questions about the ability of the labor market to post further strong gains and raises the specter of a stalled recovery.

In a separate report released this morning the number of initial claims for unemployment insurance for the week ending June 27 fell slightly to 1.43 million – still, its 14th week above 1 million. These elevated numbers continue to point to the downside risk for consumer spending, particularly when the expanded unemployment insurance benefits provided by the CARES Act expire at the end of the month.


May Employment Surprises to the Upside

By Richard Branch, Chief Economist, Dodge Data & Analytics

BEDFORD, MA – June 5, 2020 – In a huge upside surprise the U.S. economy added 2.5 million jobs in the month of May – consensus estimates were looking at a potential decline in employment of between 4 to 8 million jobs. May’s net addition to employment follows declines of 1.4 million in March and 20.7 million in April. The unemployment rate fell from 14.7% to 13.3%. Private sector jobs increased by 3.1 million while government employment was down by 585,000.

From a construction standpoint, the sector added back 464,000 jobs following a decline of 995,000 in April.  Employment in building construction rose by 105,000, while heavy and civil engineering jobs increased by 33,500. Specialty trade contractors added 325,000 jobs.

Today’s release confirms that when looking back on this recession, May will have been the low point with the recovery phase beginning in June. As state and local governments continue to loosen rules on business activity, hiring will certainly pick back up and the economy will move forward.

However, this recovery will be a very long and slow process fraught will potential pitfalls. Even with today’s number, employment is down close to 20 million from its February level. The easy lifting will come first. With the massive negative numbers in April, there was bound to be an immediate jump in employment as people started returning to work. That jump has come sooner than expected, but growth in the second half of the year will nevertheless be slow-going. Even by year end, the unemployment rate will be stubbornly high – potentially still close to 9% - compared to the 3.5% rate before the COVID crisis began. May’s report should certainly be viewed with a sense of cautious optimism in these dark and difficult times.


U.S. Job Market Loses 20.5 Million Jobs in April

By Kim Kennedy, Director of Forecasting, Dodge Data & Analytics

BEDFORD, MA – May 8, 2020 – Gut-wrenching is the word that comes to mind regarding the U.S. Bureau of Labor Statistics’ latest employment release. In April, the first full month of stay-at-home orders and social distancing due to COVID-19, the U.S. economy lost 20.5 million jobs and the unemployment rate spiked to 14.7%. This was, by far, the largest collapse of the labor market since the Great Depression. March job losses were revised down to 870,000 and, combined with April, sum to 21.4 million job losses over the past two months. These losses dwarf the 8.7 million jobs lost during the Great Recession and essentially wipe out the 22.4 million jobs gained in the decade since it ended.





The suddenness of the downturn was stunning. As recently as February, the job market had been growing for 113 months and the unemployment rate had fallen to a 50-year low of 3.5%. Furthermore, the current unemployment rate does not include the 5.1 million people whose hours were cut or the unknown numbers whose pay was reduced as a result of the pandemic.

The April figures shattered previous historical records. Previously, the largest one-month decline in employment had occurred in September 1945 when 2.0 million jobs were lost. The previous record for the highest unemployment rates (where records only go back to 1948) was 10.8% in November 1982, although estimates suggest that the unemployment rates reached nearly 25% during the Great Depression.

Job declines were widespread across industries in April. Construction lost 975,000 jobs with most of the losses coming from Specialty Trades, which fell by 691,000. But other industries were hit even harder: the greatest losses came from leisure and hospitality where 7.7 million jobs were lost (47% of the total). Most of these jobs came from restaurants and bars, which were down 5.5 million. The retail sector lost 2.1 million jobs, although warehouses/supercenters gained 93,000 jobs as online shopping surged. Education and healthcare lost a combined 2.5 million jobs in April and professional/business services were down 2.1 million. Even government employment was down 980,000 with most losses coming from local governments where 801,000 employees were laid off, mostly due to school closures.

As many states slowly begin to reopen during the month of May, job losses should begin to abate. Still, it will be many more months before the economy, and the job market, return to any sense of normalcy. As Thomas Paine once said, “These are the times that try men’s souls.”

First Quarter GDP – It Will Only Get Worse from Here

By Richard Branch, Chief Economist Dodge Data & Analytics

BEDFORD, MA - April 30, 2020 - The much anticipated advance release of first-quarter GDP came in at an annualized -4.8%, the largest quarterly decline since the fourth quarter of 2008. This was a little worse than Dodge’s expectation for a 2.5% decline.

Weakness was widespread. Consumer spending dropped 7.6% on an annualized basis, marking the largest quarterly percentage drop since the second quarter of 1980. Within consumer spending, the only category to post growth in the quarter was nondurable goods (aka groceries and other consumables).

Private investment fell back 5.6% (annualized), but the underlying story was mixed. Stark declines were evident in both nonresidential structures and equipment, the business portions of private investment. Residential investment, by contrast, posted an annualized 21% gain in the first three months of the year. Separately, Dodge reported that first-quarter single family starts were the strongest since 2007. Government spending also increased, but by a tepid 0.7% (annualized) in the first quarter.

Of course, the first quarter ended with March, before the full force of shutdowns, increased unemployment, and physical distancing were fully accounted for in economic data. Second-quarter GDP will likely be even more dour — dropping by 24% on an annualized basis in the Dodge forecast. And this may turn out to be an overly optimistic projection.

As the year transitions into the second half and as the country gradually reopens, the economy will rebound. However, the growth trajectory will depend largely on the track of the virus and how well it can be contained as stay-at-home orders are eased. Tracking, measuring, and very gradual re-opening will be key to a sustained recovery.



Potential Impact of COVID-19 on U.S. Construction Starts

By Richard Branch, Chief Economist, Dodge Data & Analytics

BEDFORD, MA – FEBRUARY 24, 2020 – The mounting number of cases of COVID-19 (Coronavirus) has roiled stock markets around the world and added concern that global economies will be materially impacted. Estimates from Moody’s Analytics suggest that first-quarter U.S. GDP growth could be reduced by nearly 0.45 percentage points as a result of the outbreak with tourism and travel taking the largest hit among U.S. industries. If the outbreak is contained quickly, U.S. economic growth should rebound in the second quarter.

The most notable impact comes from supply chains for goods from China. These supply chains have been crimped as Chinese workers remain at home, causing production to fall substantially. Here in the U.S., General Motors unions have warned that U.S. production could slow as parts dry up. Apple Inc. announced that it will not meet its first-quarter revenue projections as their China plants are shuttered. Even N.H.L hockey players have noted the shrinking supply of hockey sticks. Consumer sentiment is also taking a hit. Should containment of the virus be elusive, we could see consumer spending and business investment sour — which could cause a further drag on U.S. economic growth.

The construction industry is also not immune to challenges presented by the outbreak. A rough calculation suggests that nearly 30% of products typically used in U.S. building construction are imports from China, making the country the largest single supplier to the U.S. If the virus is not quickly contained and quarantines remain intact, supplies will continue to tighten causing building costs to continue to escalate, and potentially causing projects to be delayed or cancelled outright. The exact extent to which this happens will depend on the ability of U.S. builders to substitute products from China to domestic or other international suppliers. Note though, that many Asian countries, such as Japan, South Korea, and Vietnam that also export building products to the U.S. rely heavily on raw materials from China.

At present, our outlook continues to expect a modest decline in construction starts in 2020. The current outbreak is one of many issues facing the U.S. economy this year that will lead to a slowdown in overall economic growth and push starts lower. The issue, however, remains in flux. Dodge will continue to assess the impact of the COVID-19 virus in the coming months.

The Devil is in the Details — 2019Q4 GDP

By Richard Branch, Chief Economist


BEDFORD, MA – January 30, 2020 – The advance reading for U.S. Gross Domestic Product in the fourth quarter came in at a close-to-expected annualized 2.1%. While likely to be revised in the coming months, it painted a picture of an economy that continues to hover near its potential rate.

A closer look at the details, however, suggests that there are reasons to expect slower growth in 2020. On the plus side, the fourth quarter pace of government spending picked up driven equally by state and local governments and federal defense spending. Trade also provided a sizeable positive contribution to the headline number as exports jumped and imports tumbled.

Total fixed investment was neutral in the fourth quarter. As expected, residential investment picked up in line with rising sales and construction of single family housing in the fourth quarter. However, nonresidential investment in both equipment and structures declined for the third consecutive quarter most likely due to uncertainty over trade policy. Inventories were also a net drag on headline GDP.

The consumer, who has been the stalwart of economic growth through most of 2019, took a concerning breather, however, as spending growth cooled from an annualized 4.6% in the second quarter and 3.1% in the third quarter to just 1.8% in the final three months of the year.

For the full year, the U.S. economy grew at a 2.3% pace, down from the 2.9% rate in 2018, but about on par with growth in 2017.

Looking ahead, labor constraints are likely to slow employment growth in 2020 making it harder for consumers to sustain their level of contribution to the economic growth. Business investment is also likely to remain sluggish as uncertainty over trade policy continues despite the Phase I trade deal signed between the U.S. and China in early-January. Residential construction will also struggle to gain a foothold as margins to build entry level homes for the ballooning millennial generation remain tight. All told, economic growth will slow but remain positive in 2020, allowing the longest expansion in U.S. history to continue.


Fed Cuts Rate for Second Time in 2019

By Richard Branch, Chief Economist, Dodge Data & Analytics
BEDFORD, MA – September 19, 2019 – As widely expected, the Federal Reserve’s Open Market Committee (FOMC) lowered its federal funds rate range by 25 basis points (bps) to 1.75% – 2.0%. This marks the second rate cut of the year. What was less certain about the Fed’s move, however, was how they would portray current risks to the economy and what that implied for further changes to the federal funds rate.
In the accompanying press release, the Fed noted that consumer spending “has been rising at a strong pace” due to underlying strength in the labor market. This phrasing was slightly more upbeat than in July’s release when they also cut rates. However, they also noted “business fixed investment and exports have been weakening”, a more ominous tone than in July and a nod to potential risks to the economy caused by trade tensions with China. Overall, the Fed remained upbeat and raised their 2019 GDP forecast from 2.1% to 2.2%, with economic growth pegged at 2.0% in 2020, unchanged from their previous forecast.
The “dot plot”, which shows individual committee members’ expectations of the future path of the federal funds rate, also shifted slightly. The median path of the plot now suggests that the rate will remain in its present range through the end of the year, after the 50 bps of easing that occurred between July and September. Interestingly, it also suggests no further cuts in 2020, before rates move higher in 2021. Three committee members dissented in this month’s vote (one more than in July). Two voted against any rate cut and one voted in favor of a 50 bps cut.
Yesterday’s cut was largely priced in by the markets so there should be only minimal effects on bond markets and short-term interest rates. The FOMC has two more meetings in 2019 – in October and December. Dodge Data & Analytics continues to expect one more rate cut this year, with the potential for an additional cut in 2020 in anticipation of much slower economic growth by yearend.

Employment Growth Continues, But at a Slowing Pace

By Kim Kennedy, Director of Forecasting

Payroll employment grew by 164,000 in July, following a downwardly revised increase of 193,000 in June. This month’s increase indicates that employment and the overall economy continue to grow even if the pace has slowed from last year and even though the economy has now been expanding for a decade. After increasing at a monthly rate of 223,000 in all of 2018, job growth slowed to 165,000 per month in the first seven months of 2019 and slowed further to just 140,000 in the most recent three months. Despite the slowing pace of growth, the unemployment rate remained steady at 3.7% in July. Even July’s wage growth, which has been particularly soft over the long stretch of the recovery, rose by a healthy 3.2% from a year earlier.


July’s employment growth was broad-based, with many industries showing gains. The service-producing sector dominated July gains with an increase of 133,000 jobs. Goods-producing industries gained just 15,000 and government grew by 16,000. Within services, the large education and healthcare sector advanced by a strong 66,000 jobs and professional/business services rose by 38,000.

Within the goods-producing sector, manufacturing gained 16,000 jobs as the motor vehicle and parts industry saw employment grow by a healthy 7,200 after a modest dip in June. At the same time, construction was only able to add 4,000 jobs in July after a more ambitious 18,000 gain in June. Within construction, the improvement came from specialty trades contractors, where employment rose by 7,400. Employment in residential building gained 1,400 and nonresidential building remained little changed, but heavy/civil engineering construction fell by 4,300 jobs.

The consensus believes this was a solid jobs report, signaling that the economy still has life left in it, but within the report were suggestions that the economy is slowing over and above the general slowdown in job growth. The average workweek declined (manufacturing has cut back overtime) and total hours have flattened in 2019. These cautionary indicators may be behind the Federal Reserve’s move to drop interest rates by a quarter percent earlier this week. The Fed cited a slowing global economy and a desire to shore up domestic growth as its reasons for the dip in interest rates. Uncertainty about trade policy is also giving the Fed cause for concern. In fact, Wall Street expects the Fed to continue lowering rates at its next meeting in September. While most don’t expect this jobs report to have much effect on the Fed’s rate decision, the administration’s decision to increase tariffs on Chinese imports may be more impactful.


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