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AGC's Data DIGest: Feb. 24-Mar. 2, 2015

Construction spending slips for month but rises year-over-year; input price cuts spread

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.

Construction spending in January totaled $971 billion at a seasonally adjusted annual rate, down 1.1% from the rate in December, but up 1.8% from January 2014, the Census Bureau reported today. Private residential spending in January climbed 0.6% from December but slid 3.4% from a year earlier, while private nonresidential spending fell 1.6% for the month but rose 4.8% year-over-year. Public construction spending decreased 2.6% from December but increased 5.1% from January 2014. The largest private nonresidential segment was power construction (including conventional and renewable power plus oil and gas fields and pipelines), which plunged 13% year-over-year. The next largest private segments (in descending order of current size) were manufacturing construction, which soared 23%; commercial (new and renovated retail, warehouse and farm), 14%; and office, 15%. Of the top two public segments, highway and street construction rose 8.4%, while public educational spending edged up 0.6%. Of the three residential components, new single-family construction climbed 9.7% over 12 months; new multifamily soared 30%; and improvements to existing residential structures tumbled 30%. Although improvements are included in totals, Census does not consider the estimate reliable enough to publish. It seems improbable that improvements would have fallen, let alone so steeply, when there were increases from January 2014 to January 2015 in new-home sales (5.3%, Census reported on Wednesday), existing-home sales (3.2%, the National Association of Realtors reported on Tuesday) and sales by home-improvement chains Lowe's (47%, reported on Wednesday) and Home Depot (8.3%, reported on Tuesday).

Prices for more construction materials have declined recently. The Engineering and Construction Cost Index "dropped to 42.4% in February, down from 48.8% in January, and the lowest reading on record," IHS reported on Tuesday, based on a monthly survey of procurement executives of engineering, procurement and construction firms. (A reading greater than 50 represents "upward pricing strength;" below 50, downward pricing.) "The current materials/equipment price index registered 39.6% in February, a fresh record low, and down from 47.2% in January. Eleven of the 12 individual components notched falling prices in February, led by copper-based wire and cable, carbon steel pipe, electrical equipment and fabricated structural steel. Notably, the softness in raw commodity prices is impacting pricing for equipment, with turbines, heat exchangers, pumps and compressors all posting lower prices in February....The current subcontractor labor index lowered to 49.0% in February, down from 52.4% last month and the softest reading since January 2012. Nearly all regions registered flat labor costs, with Western Canada as the only exception posting a slight easing. February marked the first time since August 2014 that the U.S. South did not register higher month-on-month labor costs. Nevertheless, tightness in skilled-labor markets was again reported in the Gulf Coast. [Respondents say they] are being forced to reassess previously bullish sentiment regarding investments in hydrocarbon projects over 2015-2016..., with budgets being scaled back, exploration slowing and aggressive contract negotiations. However, there remains some optimism that lower feedstocks will spur further proposal activity in petrochemical projects."

In partial contrast, New South News reported on Wednesday, "over the past several months, a few manufacturers of construction materials announced price increases for March and April. Prices for most of the construction materials we distribute should remain unchanged for the next 30 to 60 days, and in some instances, such as with steel products, prices will be lower. [The] two largest domestic manufacturers of concrete forming, bar and wire mesh supports, precast, and tilt-up accessories announced they will increase prices in March. Dayton-Superior will increase prices on March 1 by an average of approximately 4.5%. Meadow Burke's price increase is effective March 9 and they will increase prices by an average of approximately 4%. Thermafiber Inc. announced a 6% across-the-board price increase for their entire line of insulations effective March 2. Roxul announced they will increase prices on all pipe and board insulations on April 1by 6%....Foreign rebar producers continued to lower their asking prices in February, as worldwide demand remained weak. Domestic rebar mills in the southeast, in an attempt to hold market share against lower cost imported rebar, reduced prices by $1.25 [per hundredweight] the third week in February....foreign wire rod producers lowered their prices in January and February and most domestic producers reduced their prices as well. Foreign concrete reinforcing wire mesh manufacturers lowered prices in February and are offering lower prices for March orders. Domestic wire mesh manufacturers, although not officially, lowered prices in mid-February by approximately 2%. Dimensional lumber prices changed little over the past few weeks and plywood prices increased modestly."

New supply of income-producing properties "picked up in 2014, but did not exceed demand nationally, except in the apartment sector,' the quarterly Dividend Capital Research Cycle Monitor reported on Tuesday in a summary of conditions for five property types in more than 50 metro areas. "The highest demand for [offices in the fourth quarter of 2014] was in Central Business District...and class-A office space....Logistics demand for [industrial] space has been very strong, along with small-tenant expansion as well as new-business-creation demand. [Apartment] deliveries continued to be strong while demand was quite good" but 28 of 54 markets are "in the hypersupply phase where occupancies decline. [Retail] demand growth was strong, providing almost 100 million square feet of absorption for the year. Top tenant industry drivers were service providers, health gyms and discount stores. Good times were not evenly distributed across the country, however....A fair amount of new [hotel] supply came online in 2014..., but demand was also strong."

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