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AGC's Data DIGest: December 7-11, 2015

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November PPIs rise for new buildings, some subcontractors, but fall for many inputs

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.

The producer price index (PPI) for final demand in November was unchanged from October on a not-seasonally-adjusted basis (up 0.3%, seasonally adjusted) and declined 1.1% year-over-year (y/y), the Bureau of Labor Statistics (BLS) reported Friday. AGC posted tables and an explanation 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, decreased 0.3% for the month and increased 2.1% y/y. 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 November 2014. The 12-month increases ranged from 1.0% for healthcare construction to 1.9% for industrial buildings, 2.2% for schools and warehouses, and 2.3% for offices. PPIs for new, repair and maintenance work on nonresidential buildings fell 1.1% for plumbing contractors from November 2014 to November 2015 and rose 1.7% for roofing contractors, 4.0% for concrete contractors and 5.8% for electrical contractors. An expanded set of PPIs for inputs to construction—excluding capital investment, labor and imports—adds services to the previous PPI for 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 slid 0.2% from October to November, as the index for energy declined 4.0%, goods less food and energy was flat, and services inched up 0.1% for the month. The PPI for all goods used in construction fell 4.2% y/y. Materials important to construction that had notable one- or 12-month price changes include diesel, down 3.5% for the month and down 38% y/y; steel mill products, -3.3% and -18%, respectively; copper and brass mill shapes, -3.0% and -16%; aluminum mill shapes, -1.4% and -13%; lumber and plywood, 1.0 and -7.4%; paving mixtures and blocks, -0.2% and -5.9%; asphalt felts and coatings, -1.1% and -5.2%; flat glass, 0 and 6.1%; and cement, -0.1 and 6.2%.

Prices for many construction materials appear likely to fall further in December and beyond. Prices for inputs including crude oil, diesel, steel scrap and copper have declined since November. Investment advisory firm Thompson Research Group issued its monthly survey of building products manufacturers and distributors on Thursday. The firm reported that from October to November, prices were down for steel studs and wallboard, and flat for insulation, roofing and ceiling materials. "Overall carpet pricing still is holding up even in an environment of lower raw materials....Industry contacts this month pointed out that pricing of lower-end [hard-floor] products has gradually declined."

The value of nonresidential construction starts, not seasonally adjusted, increased 1.6% y/y from November 2014 to November 2015 and 4.6% year-to-date (YTD) from the first 11 months of 2014 to the same period of 2015 combined, CMD (formerly Reed Construction Data) reported on Thursday, based on data it collected. Building starts slipped 0.9% y/y and YTD, with institutional down 5.1% YTD; commercial 0.2% YTD; and industrial up 27% YTD. Heavy engineering starts rose 5.5% y/y and 14% YTD, with double-digit YTD gains in all subcategories except airports (-1.0% YTD).

On Thursday, the Bureau of Economic Analysis for the first time released quarterly estimates of gross domestic product (GDP) by state for 21 industry sectors. Construction increased 9.8% at a seasonally adjusted annual rate from the first quarter of 2015 to the second quarter and contributed to real GDP growth in the District of Columbia and every state except North Dakota and West Virginia. The construction contribution to state GDP growth was greatest in Nevada, Idaho and Iowa.

On Tuesday, BLS posted projections of employment change by industry and occupation for the period 2014-2024. Construction is projected to add 790,400 jobs by 2024, or 1.2% per year, double the all-industry growth rate. Construction is projected to have the second-highest growth rate and fourth-largest numerical increase among 17 major sectors. BLS noted, "Even with these additional jobs, employment in [construction] is not projected to return to the 2006 peak" since the industry shed 837,800 jobs (-1.3% per year) between 2004 and 2014. The National Association of Home Builders noted in an "Eye on Housing" blog on Tuesday, "The projections utilize a number of structural variables regarding the future growth of the economy. With respect to construction activity, the BLS models residential fixed investment as growing at a 3.7% annual rate, with 7.7% for single-family and 2.2% for multifamily. Nonresidential structure investment is modeled as growing at an annual 3% rate. The BLS report provides additional detail at the occupation level of analysis for the 2014-2024 period. Within the construction worker occupation, the top growing jobs include solar photovoltaic installers (24.3% total growth over 10 years), iron/rebar workers (23.4%), insulation workers (19.4%), brickmasons and blockmasons (17.9%), electricians (13.7%), and earth drillers (13.6%). In terms of total construction and extraction occupational employment across all industries, employment is expected to grow by 659,000 (10.1%). However, total job openings over this period are expected to total 1,682,200 due to both net growth (the 659,000 from above) and replacement needs for workers leaving the industry."

The Census Bureau released its quarterly services survey on Thursday. Revenue for architectural and related services firms in the third quarter of 2015 decreased 2.8% from the second quarter and 2.6% from the third quarter of 2014. Revenue for engineering services firms fell 2.1% and 7.1%, respectively.

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.