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AGC's Data DIGest: December 9 - 16, 2013

Materials costs fall; job openings rise but hiring dips; age cohort shifts pose challenges

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.

View the November PPI table here.

The producer price index (PPI) for finished goods fell 0.5%, not seasonally adjusted (-0.1%, seasonally adjusted), in November and edged up just 0.7% over 12 months, the Bureau of Labor Statistics (BLS) reported on Friday. The PPI for inputs to construction – a weighted average of the cost of all materials used in construction plus items consumed by contractors such as diesel fuel—also dropped 0.5% for the month and rose 1.1% year-over-year. The PPIs for inputs to different types of construction all declined for the month and increased only slightly year-over-year: residential, -0.3% and 1.5%; commercial structures, -0.4% and 1.0%; total nonresidential, -0.6% and 0.7%; industrial structures, -0.4% and 0.6%; and other nonresidential, -0.8% and 0.5%. Inputs that contributed to the monthly decrease and year-over-year moderation included: diesel fuel, -3.9% in November and -5.6% over 12 months; copper and brass mill shapes, -1.1% and -6.0%; aluminum mill shapes, 0 and -4.3%; and asphalt felt and coatings, -3.5% and -1.2%. Items with 12-month price declines despite small increases in November included: steel mill products, 0.8% and -0.6%; architectural coatings, 0.1% and -1.0%; and plastic construction products, 0.4% and -1.0%. Two indexes fell for the month but still jumped year-over-year: gypsum products, -1.6% and 14%; and insulation materials, -0.1% and 8.2%. The PPI for lumber and plywood soared in both periods: 1.4% and 13%. PPIs for new nonresidential construction and for subcontractors varied for the month but all rose year-over-year: offices, 0 in November and 2.7% over 12 months; warehouses, 0.9% and 2.9%; health care construction, -0.2% and 3.0%; schools, 0.1% and 3.3%; and industrial buildings, 0.1% and 4.1%. PPIs for new, repair and maintenance work on nonresidential buildings by plumbing contractors rose 0.2% and 4.3%; concrete contractors, 0.1% and 2.9%; electrical contractors, 0 and 1.8%; and roofing contractors, -0.6% and 1.3%.

Seasonally adjusted job openings in construction increased from 100,000 at the end of October 2012 to 124,000 on October 31, 2013, BLS reported on Tuesday in its monthly Job Openings and Labor Turnover Survey (JOLTS). Yet hires in construction during October dipped from 318,000 in 2012 to 307,000 in 2013, possibly indicating that contractors are having more trouble finding qualified workers. Quits fell from 93,000 to 85,000; layoffs, discharges and other separations held steady at 195,000.

The Census Bureau on Wednesday released tables showing the population in each age bracket in 2012. Comparing the change in size of various brackets since 2007, along with projecting the 2012 brackets forward five years, shows several facts with implications for demand for various types of construction and for potential workforce. For instance, the number of 20-to-24-year-olds, the age at which many people start their careers, increased by 1.3 million (6.6%) in the past five years. However, construction hires dropped by 6 million (23%) compared with the previous five years, an AGC analysis of JOLTS data found. Now, the industry has more job openings, but the pool of 20-24-year-olds will shrink by 600,000 (-2.9%) in 2017 (assuming no net change in the size of the 2012 cohort of 15-19-year-olds.) Demand for school and college construction may drop, as the number of 5-9-year-olds will fall by 300,000 (-1.5%); 10-14-year-olds, -200,000 (-0.9%); and 15-19-year-olds, -600,000 (-3.0%). The largest numerical and percentage increases will occur among cohorts that are currently 60 and older. That is likely to expand demand for senior housing and medical facilities but may also add to the supply of single-family houses on the market. The increase in 25-39-year-olds will be more than offset by a drop in 40-54-year-olds, leaving uncertainty as to who will buy the houses that seniors will be trying to sell.

Employer costs for employee compensation (wages and salaries, benefits and required payments such as unemployment insurance) in the third quarter totaled $34.19 per hour in construction, 9.7% more than the $31.16 average for all employees, BLS reported on Wednesday. Wages and salaries averaged $23.80 (70%) of the total in construction, compared with $21.54 (69%) for all employees. Legally required benefits accounted for $3.53 (10%) of compensation in construction, including $0.41 for federal and state unemployment insurance and $1.16 for workers’ compensation, compared with $2.43 (8% of compensation), $0.24 and $0.44, respectively, for all employees.

State tax revenues grew by 9% from the second quarter of 2012 to the second quarter of 2013, the Rockefeller Institute of Government reported on December 9. “At the end of FY 2013 [fiscal year 2013 – June 30 in most states], inflation-adjusted total tax revenues for the first time surpassed the peak levels reported in FY 2008. Preliminary figures for the third quarter of 2013 indicate continued but much softer growth in state tax revenues. Local property tax revenues grew by 2.0% in the second quarter, marking the fifth consecutive quarter of growth in nominal terms.” Rising state and (more recently) local tax revenues have not been matched by restoration of construction spending. Census data released on December 2 show that state and local construction spending in October was 7% higher than the low in April but 13% below the March 2009 peak.

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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