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AGC's Data DIGest: December 9-12, 2014

PPI falls in November as diesel price plunges; mixed moves foreseen for materials costs

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 decreased 0.4%, not seasonally adjusted (-0.2%, seasonally adjusted), in November and increased 1.4% over 12 months, BLS reported Friday. 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, or for residential or nonbuilding construction. The PPI for final demand construction, not seasonally adjusted, rose 0.1% in November and 2.2% 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—also climbed 0.1 % for the month and 2.2% since November 2013. The PPI for new healthcare construction increased 0.1% and 1.8%, respectively; industrial buildings, 0.2% and 2.1%; offices, -0.2% and 2.1%; warehouses, -0.1% and 2.2%; and school buildings, 0.1% and 2.2%. PPIs for new, repair and maintenance work on nonresidential buildings by plumbing contractors rose 0.2% and 2.4%; concrete contractors, 0 and 1.5%; electrical contractors, -0.1% and 1.0%; and roofers, -0.2% and 4.8%. 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—dropped 0.8% in November and increased 0.6% over 12 months. Materials with notable one- or 12-month price changes included diesel, -4.2% and -11%, respectively; copper and brass mill shapes, 0 and -3.0%; cement, 0 and 5.9%; aluminum mill shapes, 0.5% and 9.3%; and gypsum products, 0.3% and 11%.

Prices for construction inputs have shown mixed patterns since the PPI data were collected in mid-November. The Energy Information Administration reported  that the average retail price of on-highway diesel fuel fell 14 cents in the previous four weeks. The price of Brent crude futures, a major determinant of near-term diesel futures, has fallen an additional $6 per barrel (14 cents per gallon) in the past week. But contractors have forwarded to AGC copies of letters from suppliers announcing increases for ready-mix concrete (D.C. area, effective January 1, received November 26) and "12% on all clear tempered glass as well as a 5% increase in the cost of fabrication" (Denver area, received December 11). Readers are invited to send reports of price increases or decreases to AGC Chief Economist Ken Simonson at simonsonk@agc.org. On November 24, investment analyst Thompson Research Group wrote, "we see pricing momentum building [for aggregate] as we head into 2015, including in many markets that have yet to see any meaningful increase since the downturn....In addition, $10-$20/ton cement prices are being implemented in the cement industry in early 2015."

The value of nonresidential construction starts rose 4.9% from November 2013 to November 2014 and 7.4% year-to-date for the first 11 months of 2014 combined compared with the same period last year, CMD (formerly Reed Construction Data) reported on Thursday, based on data it collected. Nonresidential building starts increased 6.9% year-over-year and 5.9% year-to-date; institutional buildings increased 17% and 8.4%, respectively, while commercial building starts plunged 16% year-over-year but increased 2.8% year-to-date. Heavy engineering starts climbed 1.8% and 9.9%, led by increases of 9.0% and 17% for road/highway construction.

Seasonally adjusted results from Manpower Group's latest survey of 18,000 U.S. employers, released on Tuesday, "suggest that employers expect hiring intentions to remain relatively stable during Quarter 1 2015 compared to Quarter 4 2014 and to slightly increase compared to one year ago at this time....employers have a positive outlook in all 13 industry sectors included in the survey...When the industry sector data is compared quarter-over-quarter, employers in the [construction sector] expect the hiring pace to slightly increase....Among Midwest employers, [a] considerable increase is anticipated among employers in the construction [sector. In the West,] construction employers plan to moderately decrease hiring," whereas construction employers in the Northeast and South expect to moderately increase hiring. Combining responses from all sectors, "all 100 of the largest Metropolitan Statistical Areas (MSA) in the United States report positive Net Employment Outlooks," led by Cape Coral, Fla.; McAllen, Texas; Deltona, Fla. and Grand Rapids, Mich.

The Census Bureau released projections of population by age group for 2015-2060 on Wednesday. Population growth and its age distribution have major implications for numerous types of construction. Census projects that the population growth will slow continuously from 2.6 million (0.8%) per year in 2015 through 2023 to 1.9 million (0.46%) in 2057-2060, implying a diminishing demand for new housing. The primary-school age (5 to13 years old) population is projected to be flat from 2015 to 2020, and the high-school age (14 to 17 years old) population is projected to vary by less than 1% through 2030, suggesting much less demand for school construction than in the past several decades. The number of college-age and new workforce entrants (18 to 24 years old) is projected to remain below its 2015 level until 2040, which suggests less higher-education construction and also challenges for contractors trying to replace retiring workers.

Census released the first detailed industry results from the 2012 Census of Construction, with additional releases planned through February. The 12 sets of tables released provide data on framing, glass and glazing, siding, tile and terrazzo, and finish carpentry contractors, by state, project type, expense categories and other characteristics.

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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