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AGC's Data DIGest: April 10-16, 2015

Construction employment dips in March but wages move up; reports vary on cost trends

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The producer price index (PPI) for final demand increased 0.4%, not seasonally adjusted (0.2%, seasonally adjusted), in March but dropped 0.8% over 12 months, the Bureau of Labor Statistics (BLS) reported on Tuesday. AGC posted an explanation and tables focusing on construction prices and costs. Final demand includes goods, services and five types of nonresidential buildings that BLS says make up 34% of total construction. The PPI for final demand construction, not seasonally adjusted, was flat in March and rose 1.9% over 12 months. The overall PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of five categories of buildings—climbed 2.0% since March 2014. The 12-month increases ranged from 1.2% for healthcare construction to 1.6% for schools, 1.8% for warehouses, 2.1% for industrial buildings and 2.6% for offices. PPIs for new, repair and maintenance work on nonresidential buildings by electrical and plumbing contractors increased 1.1% over 12 months; concrete contractors, 2.3%; and roofers, 2.9%. An expanded set of PPIs for inputs to construction, excluding capital investment, labor and imports, adds services to the previous construction industries, goods (formerly called inputs to construction industries). Goods constitute 60% of the index (including 7% for energy); services, 40% (trade services, 25%; transportation and warehousing services, 4%; other services, 10%). The overall PPI for inputs to construction rose 0.4% from February to March, as a 7.5% one-month jump in the index for energy outweighed an unchanged index for goods less food and energy and a dip of 0.1% in services. The PPI for all goods used in construction declined 3.6% over 12 months. Materials important to construction that had notable one- or 12-month price changes include diesel, up 2.3% for the month but down 39% over 12 months; copper and brass mill shapes, 1.1% and -7.1%, respectively; steel mill products, -1.9% and -4.8%; aluminum mill products, -0.9% and 4.4%; lumber and plywood, -1.2% and -4.4%; concrete products, 0.1% and 4.2%; and cement, 0.2% and 9.5%.

The value of nonresidential construction starts dropped 5.1% from March 2014 to March 2015 but increased 2.6% from the first quarter (Q1) of 2014 as a whole to Q1 2015, CMD (formerly Reed Construction Data) reported on Tuesday, based on data it collected. Heavy engineering projects rose 7.7% from Q1 to Q1, with the largest component, road/highway, rising 17%. Commercial construction slumped 11.5% and institutional construction slipped 1.1% despite a 23% rise in school/college starts.

"Reports from the 12 Federal Reserve districts indicate that the economy continued to expand across most regions from mid-February through the end of March," the Fed reported on Wednesday in its latest "Beige Book," a compilation of informal soundings of business conditions in the districts (which are referenced by the name of their headquarters cities). "Philadelphia, Cleveland, Atlanta, and Dallas reported a slowdown in [residential] construction activity due in part to harsh weather conditions....The multifamily sector remains strong, with flat to declining vacancy rates reported in multiple Districts. Boston, Cleveland, and San Francisco reported a continued shortage of skilled [construction] labor, which was cited as a factor driving up wages....Boston, New York, Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco all saw strong gains in industrial and office building construction....Cleveland mentioned that successful developers have easier access to credit compared to prior years, and Boston reported a slight uptick in speculative activity for commercial construction."

The Construction Labor Research Council reported in its Union Construction Labor Cost Trends and Outlook 2015 report, "The average already negotiated increase for 2015 is 2.8% ($1.53) and for 2016 it is 2.7% ($1.60)." Of the limited number of contracts negotiated so far for 2016 (including multi-year contracts negotiated before 2015), a higher share of the agreements have raises of 3% or more than in 2015, indicating a possible acceleration in wages. "From 2010-2014 the average percent increase has fluctuated between 2.4 and 2.7%," compared with a range of 3.9% to 4.4% from 2005 to 2009.

Census Bureau population estimates for July 2013 to July 2014 released on March 26 for counties and metro areas "suggest a renewed growth in outer suburban 'exurban' counties, propelled by domestic migration," William Frey of the Brookings Institution wrote on April 8. "The growth is perhaps a sign that the housing market is luring young adults out of the urban core, and it raises the possibility that the attraction of cities—registered for the last three years—may not be as permanent as some assumed. Using a Brookings classification of counties associated with urban cores and suburbs within large metropolitan areas, we see for the first time since 2010 that exurban counties are growing faster than inner urban core counties nationally. [These locations] lie on the peripheries of a slew of large urban areas. [In 2010 to 2012] the nation's urban cores lost only about 160,000 migrants annually. But out-migration from urban cores picked up to 363,000 in 2013-2014, and at the same time we see an uptick in in-migration to outer suburban and exurban counties—and greater population growth in these areas. Like the outer suburbs, entire metropolitan areas in the interior Sun Belt are gaining migrants too....Of the 11 greatest migration-gaining large metropolitan areas, all are located in the Sun Belt, and each gained more migrants in 2013-2014 than in the previous year.... These areas include the four Texas metropolitan magnets of Houston, Dallas, Austin, and San Antonio and two in Florida—Tampa and Orlando. Several of these, including Las Vegas, experienced the same boom-then-bust experience of Phoenix and Atlanta. While few areas are gaining migrants at the torrid pace experienced in 2005-2006, they are nevertheless showing clear signs of migration revival." Meanwhile, "many Snow Belt locations are experiencing increased out-migration."

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