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AGC's Data DIGest: April 7 – 11, 2014

PPIs remain mild; most metros add jobs; ABI ably predicts building activity, AIA finds

Editor’s note:  Construction Citizen is proud to partner with AGC America to bring you AGC Chief Economist Ken Simonson's Data DIGest. Check back each week to get Ken's expert analysis of what's happening in our industry.

Sign up for a complimentary webinar on construction outlook on April 17 with me; AIA Chief Economist Kermit Baker; and Reed Construction Data’s Chief U.S. Economist, Bernard Markstein.

The producer price index (PPI) for final demand increased 0.7%, not seasonally adjusted (0.5%, seasonally adjusted), in March and 1.4% over 12 months, the Bureau of Labor Statistics (BLS) reported Friday. The PPI for final demand covers not only the prior headline PPI for finished goods (about 34% of total final demand), but also final demand services (64% of the total) and final demand construction (2% of the total). AGC posted an explanation and tables focusing on construction prices and costs. Construction is limited to five types of nonresidential buildings that BLS says make up 34% of total construction. Other building types, along with residential and nonbuilding construction, are not included. There are separate final demand indexes for private capital investment, government, personal consumption and exports, but only the first two are considered buyers of construction, since housing is not measured and buildings are not exported. The PPI for final demand construction, not seasonally adjusted, was flat in March and rose 3.2% over 12 months. The overall PPI for new nonresidential building construction—a measure of the price contractors say they would charge to put up a fixed set of five categories of buildings—was also unchanged for the month and rose 3.5% since March 2013. The PPI for new warehouse construction (11% of the index for new nonresidential buildings) inched up 0.1% in March and 2.7% over 12 months; offices (34% of the total), 0 and 2.9%, respectively; health care buildings (16% of the total), 0 and 3.8%; industrial buildings (13% of the total), 0.1% and 4.0%; and schools (26% of the total), 0.1% and 4.1%. The PPI for inputs to construction—an average of the cost of all materials used in construction plus items consumed by contractors, such as diesel fuel—rose 0.5% and 1.1%. Major construction materials with notable one- or 12-month price swings included gypsum products, for which the PPI slipped 0.9% in March, but climbed 9.5% year-over-year; insulation materials, 3.7% and 7.5%, respectively; lumber and plywood, 1.4% and 4.7%; diesel fuel, -1.1% and -1.0%; aluminum mill shapes, -.0.1% and -2.3%; and copper and brass mill shapes, -2.6% and -7.1%. PPIs for new, repair and maintenance work on nonresidential buildings by plumbing contractors rose 1.8% and 4.5%; roofing contractors, 0.3% and 2.2%; electrical contractors, 0 and 2.0%; and concrete contractors, 0 and 1.7%.

From February 2013 to February 2014 construction employment increased in 175 out of 339 metropolitan areas (including divisions of larger metros) for which BLS reports construction data, declined in 106 and was flat in 58, according to an analysis of BLS data that AGC released on Wednesday. (The agency combines mining and logging with construction in most metros to avoid disclosing data for industries with few firms. Because metro data is not seasonally adjusted, comparisons with months other than February are not meaningful.) Houston-Sugar Land-Baytown added the most jobs in the past year (9,600 construction jobs, 5%), followed by the Santa Ana-Anaheim-Irvine, Calif. division (8,600 jobs, 12%) and the Los Angeles-Anaheim-Irvine division (8,000 construction jobs, 7%). The largest percentage gains occurred in Monroe, Mich. (65%, 1,300 combined jobs); El Centro, Calif. (32%, 600 combined jobs); and Reno-Sparks, Nev. (31%, 2,600 construction jobs). The Gary, Ind. division again had the highest number and percentage of jobs lost (-4,700 construction jobs, -25%).

In Designing the Construction Future, a white-paper posted in late March, the American Institute of Architects (AIA) found that its Architectural Billings Index (ABI) “performed well in anticipating future levels of nonresidential building activity, and this relationship improved during this past construction cycle. The ABI lead (national and sector-specific) over building construction spending (total and sector-specific) ranges from seven to 11 months, and the related correlations between the ABI and spending levels are consistently high….The relationship between the ABI and nonresidential building spending significantly improved in recent years, with the correlation rising from 0.82 over the 1995-2003 period to 0.90 in recent years….The lead of the ABI over construction activity [averaged] 14 months between 1995 and 2003, the lead shortened to 11 months during the 2004 to 2007 upturn, and then increased to 12 months since 2008.” The ABI measures the difference between the share of a panel of 750 architecture firms that reported rising billings in the latest month and the share with falling billings, seasonally adjusted. AIA Chief Economist Kermit Baker will discuss the findings during a webinar on April 17 with AGC Chief Economist Ken Simonson and Reed Construction Data’s Chief U.S. Economist, Bernard Markstein.

"Wind capacity additions ... dropped sharply in 2013 to less than one-tenth of the capacity added in 2012,” the Energy Information Administration reported last Tuesday. “This was a widely expected result of the rush to complete wind projects in 2012 to qualify for the federal production tax credit. Unlike previous versions of the tax credit, the one-year extension for 2013 allowed developers to claim the tax credit for projects that began construction in 2013 even if the project will be completed in a later year. Consequently, developers were not as pressured to complete wind projects by the end of 2013. At this time, there have not been any subsequent extensions of the tax credit. More than 90% of the wind generation capacity additions in 2013 were located in five states: California, Kansas, Michigan, Texas, and New York.”

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at www.agc.org/datadigest.

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