Construction spending skids in June; jobs rise in July; wage gains vary by sector, state
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The producer price index (PPI) for final demand increased 0.1%, not seasonally adjusted (and seasonally adjusted), in July and 1.7% over 12 months, the Bureau of Labor Statistics reported last Wednesday. 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. There are no indexes yet for other building types, residential or nonbuilding construction. The PPI for final demand construction, not seasonally adjusted, rose 0.5% in July and 3.3% over 12 months. The overall PPI for new nonresidential building construction—a measure of the price contractors say they would charge to build a fixed set of five categories of buildings—rose 0.4% for the month and 3.2% since July 2013. The PPI for new warehouse construction (11% of the index for new nonresidential buildings) rose 0.9% in July and 2.3% over 12 months; offices (34% of the total), 0.5% and 3.1%, respectively; industrial buildings (13% of the total), 0.6% and 3.6%; health care buildings (16% of the total), 0.1% and 3.6%; and schools (26% of the total) 0.2% and 3.7%. PPIs for new, repair and maintenance work on nonresidential buildings by electrical contractors rose 0.6% and 0.8%; concrete contractors, 0.3% and 1.5%; roofers, 0.4% and 4.2%; and plumbing contractors, 0.4% and 5.2%. 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—was flat in July and increased 2.0% over 12 months. Major construction materials with notable one- or 12-month price swings included lumber and plywood, 0.2% since June and 12% since July 2013; gypsum products, -0.3% and 8.6%; insulation materials, -0.5% and 7.6%; hot-rolled structural shapes, 0 and 7.2%; and asphalt felts and coatings, -2.7% and -7.2%.
The value of nonresidential construction starts in July rose 1.4% compared with July 2013, Reed Construction Data reported last Friday, based on data it collected. Cumulative starts for the first seven months of 2014 exceeded January-July 2013 starts by 4.8%. Nonresidential building starts rose 0.8% year-to-date, with a 7.1% drop in commercial starts offsetting gains of 7.2% for institutional buildings and 4.6% for industrial (manufacturing). Heavy engineering starts rose 12% year-to-date.
“The country’s fastest-growing cities are now those where housing is more affordable than average, a decisive reversal from the early years of the millennium, when easy credit allowed cities to grow without regard to housing cost and when the fastest-growing cities had housing that was less affordable than the national average,” the New York Times reported on August 4. “Oklahoma City, for example, has outpaced most other cities in growth since 2011, becoming the 12th-fastest-growing city last year. It has also won over a coveted demographic, young adults age 25 to 34, going from a net loss of millennials to a net gain. Other affordable cities that have jumped in the growth rankings include several in Texas, including El Paso and San Antonio, as well as Columbus, Ohio, and Little Rock, Ark…. from 2008 to 2012, all five of the cities with the most growth were more affordable than average, including Raleigh-Durham, N.C., and the cities of El Paso, San Antonio, Austin and McAllen in Texas. [In Oklahoma City,] all 73 inner-city schools are being rebuilt or refurbished. Downtown, there is enough streetscaping going on to render a GPS unit useless.” Sustained population growth usually generates demand for various types of construction. But the linkage may not apply in older cities that had earlier lost population and have spare capacity in schools, public safety buildings, infrastructure and stores.
“Across the nation, the value of medical-office space is skyrocketing as the size and credit quality of tenants increase,” the Wall Street Journal reported on Wednesday. “In an exodus that began in 2009 and accelerated under the Affordable Care Act, many physicians are abandoning the independent-practice model to join large systems that are better able to create efficiencies and control costs….The new economics of the industry also have led to strong demand from investors who want to own medical-office buildings.” But seasonally adjusted spending put in place on medical buildings decreased from year-earlier levels in April, May and June, after 29 consecutive months of year-over-year increases, Census Bureau data shows.
“Farmland values in the U.S. Midwest remained mostly stagnant in the second quarter, the latest sign of a slowdown in the market after a multiyear boom, according to Federal Reserve reports on Thursday,” the Wall Street Journal reported last Friday. “The average price of farmland in the Federal Reserve Bank of St. Louis’s district, which includes parts of Illinois, Indiana and Missouri [, Kentucky, Mississippi, Tennessee, and all of Arkansas], dropped 0.4% in the second quarter from the previous quarter, the bank said. In the Kansas City Fed district, prices for irrigated cropland and farmland without irrigation systems rose less than 1% over the same period, with year-over-year gains moderating in states like Kansas and Missouri. [The district also covers Colorado, Nebraska, Oklahoma, Wyoming and part of New Mexico.] Meanwhile, the Chicago Fed district, which includes Iowa and [parts of Illinois, Indiana, Michigan and Wisconsin], reported a 2% increase in farmland values, far less than quarterly gains seen in recent years.” Seasonally adjusted spending on farm construction has declined from year-earlier levels in 13 of the past 15 months after rising at double-digit rates throughout 2012, an AGC analysis of Census data shows. (Census includes farm construction in “commercial” but does not break it out on a monthly basis.) Declines in farm income and land values also negatively affect construction demand from nearby towns and firms selling farm equipment and supplies.
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