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AGC's Data DIGest: April 3-9, 2015

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

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Nonfarm payroll employment increased by 126,000 in March, seasonally adjusted, and by 3,128,000 (2.3%) over 12 months, the Bureau of Labor Statistics (BLS) reported on Friday. Construction employment dipped by 1,000 for the month but increased by 282,000 (4.7%) over the year to 6,344,000. Residential construction employment (residential building and specialty trade contractors) dropped by 2,800 for the month but rose 136,300 (6.0%) over 12 months. Nonresidential employment (building, specialty trades, and heavy and civil engineering construction) increased by 1,100 in March and 145,000 (3.8%) year-over-year. Average hourly earnings in construction rose to $27.23, a gain of 2.8% over the past year, up from 1.9% in the previous 12 months and the largest 12-month percentage increase since August 2009. Average weekly hours in construction in March totaled 39.1 hours, similar to each of the previous 12 months except for an upward blip in February. The number of unemployed workers who last worked in construction fell from 950,000 in March 2014 to 831,000 in March 2014, the lowest March total since 2006. The unemployment rate for such workers fell from 11.3% to 9.5%, the lowest March rate since 2007. (Industry unemployment data are not seasonally adjusted and should only be compared year-over-year, not across months.)

Consultant Rider Levett Bucknall (RLB) reported on April 1 that its National Construction Cost Index increased 1.2% from October 2014 to January 2015 and 5.4% over 12 months. The index "tracks the 'true' bid cost of construction, which includes, in addition to costs of labor and materials, general contractor and subcontractor overhead costs and fees (profit). The index also includes applicable sales/use taxes that 'standard' construction contracts attract." Among the 12 cities for which the index is calculated, construction costs rose the most in Honolulu (13%) and least in Las Vegas (3.6%) and Phoenix (3.7%). "In those areas where construction activity is picking up the most, the smaller-sized industry is struggling to keep up with demand," states Julian Anderson, president of RLB North America. "Although the actual costs of labor and materials continue to increase slowly, the growing demand and limited supply of subcontractors has led to upward pressure on bid prices in busy areas."

In contrast, consultant IHS and the Procurement Executives Group (PEG) reported on March 26 that "construction costs fell again March....The headline current IHS PEG Engineering and Construction Cost Index (ECCI) registered 44.7 in March, a slight uptick from February's record low, but still considerably below a neutral reading [of 50 on a 0-to-100 scale]. The headline index has not indicated rising costs since December 2014. 'The rout in crude oil markets is clearly having a chilling effect on capital expenditure plans,' said Mark Eisinger, senior economist at IHS. 'That said, survey respondents remain optimistic that projects are simply being delayed and not canceled.' The current materials/equipment index registered 43.0 in March, [up] from February's 39.6 reading, but still consistent with the overall narrative of softer prices. Nine of 12 individual components registered falling prices in March, led by copper-based wire and cable, carbon steel pipe, alloy steel pipe, and fabricated structural steel....Ready-mix concrete was the outlier in the March survey as the only underlying component showing higher month-on-month prices. 'Three main forces are supporting cement and ready-mix prices in this environment," said IHS economist Charlie McCarren. 'First, the demand environment is improving, even if not all end markets are steadily progressing. Second, since the recession, the cement industry has become more concentrated, improving the remaining cement manufacturers' leverage over pricing. And finally, a wave of potentially costly [capital expenditure] investments will likely hit the cement industry this year as it struggles to comply with the 2010 National Emissions Standards for Hazardous Air Pollutants (NESHAP); the current pricing environment likely reflects the industry's attempt to co-opt clients into sharing part of the costs.'

The current subcontractor labor index eased further to 48.7 in March, down from 49.0 in February to its softest reading since January 2012....For the second month in a row, the Southern U.S. did not register higher month on month labor costs. Nevertheless, tightness in skilled labor markets was still reported in the Gulf Coast. [The ECCI is based on responses from] procurement executives of leading engineering, procurement and construction firms....Respondents are asked whether prices—either actual paid transactions or company-informed transactions—during the current month for individual materials, equipment, and regional subcontractor rates, were higher, lower or the same as the prior month."

From July 1, 2013 to July 1, 2014, Houston-The Woodlands-Sugar Land had the largest population increase of any metro area (156,000), followed by Dallas-Fort Worth-Arlington (131,000), the Census Bureau reported on March 26. For the second year in a row, The Villages, Fla., west of Orlando, was the fastest-growing metro (5.4%), followed by Myrtle Beach-Conway-North Myrtle Beach, S.C.-N.C. (3.2%). Over time, population growth drives demand for many types of construction.

Wells Fargo Economics reported Thursday, "Using data from the Census Bureau's Current Population survey, we look at moving trends to see if in fact Millennials are forgoing the suburbs and flocking to the city. We find an increase in the rate at which Millennials are moving into cities, but that the pace still trails the rate at which young adults are moving to the suburbs. In other words, Millennials who move into a different type of area are more likely to move to a suburb than a city. This is particularly true for Millennials in their 30s, where moving rates to the suburbs have picked up noticeably the past three years. The gap between suburban and city moves for younger adults, on the other hand, has narrowed in recent years, indicating preferences are shifting more toward city-living."

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