Construction Economic Report

Big Items

GDP: Q1 has just come to an end and the data is being collected so we will soon have some idea what that quarter actually looked like (although there will be at least two revisions coming). The last estimate from GDPNow was not a great one – just 1.3%. At one point earlier in the quarter, the numbers looked promising and some asserted that 2.5% was possible. That was before the Iran war and the oil crisis and now the economy as a whole is limping at the slowest pace seen since Q1 of 2025.

Housing Permits/Starts: Housing starts showed some solid growth at the start of the year. They were up 7.2% over December of last year and 9.5% over the previous year. The pace of multifamily housing was the driver with a remarkable gain of 29.1% compared to a slight decline in the pace of single-family construction (down by 2.8%). That took place during the period when the 10-year bond yield fell slightly below 4.0% and mortgage rates fell a bit.

Raw Material Prices/Availability: The supply chain woes have been front and center for weeks now and the prospect for more disruption is high. The war in Iran has affected global supplies of oil, petrochemicals, precursor materials, fertilizer and so on. The list is very long. Add in the confusion over tariffs and there is spectacular variability across the supply chain. The most immediate pressing issue (beyond shortages) is the threat of much higher prices. Inflation has already hit the transportation sector with hikes of close to 5.0% over last year. Capacity is strained. The load to truck ration has not been this high since the pandemic – there are now 80 loads for every flatbed truck and that leads to very high pricing.

Labor Situation/Labor Costs:The latest reading for the Employment Cost Index for construction was growing at a somewhat accelerated pace. It was up 0.7% in the fourth quarter of last year and up by 4.3% for the year as a whole. That pace is expected to hold in Q1 of this year. Most of the increase has been accounted for by the medical sector but there have been major hikes in construction and manufacturing depending on the skill level involved. Labor shortage is acute despite the fact that 7 million people are looking for work. They lack the skills needed and already skilled workers are in short supply.

Manufacturing:The S&P PMI has been showing pretty solid global activity. Most of the nations are now in the expansion category (only four are in contraction). The US is at 51.6 and Canada is at 51.0. Mexico has slipped a bit from the 50s to 46.3 last month and 47.1 this month. The expectation had been that trade wars would have dragged these numbers down but that has not been the case thus far. The Asian states are doing better than those in Europe. China has a PMI reading of 52.1 despite the restrictions on selling to the US.

Risks

Oil, Oil, Oil: It seems like we have this scenario pretty often. Oil still propels the world in both obvious and subtle ways. As of this writing there had been a breakthrough in the Iran conflict as there is a ceasefire between the Hezbollah and Israel in Lebanon. This involves Iran as they are the
supporters of Hezbollah. This truce means the Straits of Hormuz opened to traffic. Oil prices fell by 11% immediately. Whether this is temporary or more lasting remains to be seen.

Waiting for the Ten-Year Bond: – The “magic” number when it comes to the yield on the ten-year bond is 4.0%. There is no hard and fast rule here but the mortgage markets respond. When the yield drops below that 4.0% level there is much more aggressive mortgage activity as we saw a few months ago. Right now, the yield is above that line and it has to retreat before there is another mortgage surge.

April 2026 Report

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