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AGC's Data DIGest: February 16-19, 2016

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PPIs for new construction rise more slowly in January; ABI, housing starts level off

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 January increased 0.3% from December, not seasonally adjusted (0.1%, seasonally adjusted) but fell 0.2% year-over-year (y/y) from January 2015, the Bureau of Labor Statistics (BLS) reported on Wednesday. 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 1.2% y/y, down from a 1.8% rise in 2015. 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—rose 1.1% y/y. Changes ranged from -0.2% y/y for healthcare construction to 1.1% for offices, 1.3% for industrial buildings, and 1.6% for warehouses and schools. PPIs for new, repair and maintenance work on nonresidential buildings fell 2.0% y/y for plumbing contractors and rose 1.2% for roofing contractors, 3.7% for concrete contractors and 5.4% for electrical contractors. The large increases in concrete and electrical subcontractors' rates are consistent with the September 2015 AGC Workforce Survey, in which 63% of respondents said their firms were having trouble filling positions for concrete workers and 60% for electricians. BLS updated the "relative importance" weights for components to PPIs for inputs to construction—excluding capital investment, labor and imports. The index is now a mix of 41% services (including trade services, 26%; transportation and warehousing, 4%; and other services, 10%) and 59% goods (including 5% for energy, down from 7%, reflecting a huge drop in fuel prices). The overall PPI for inputs to construction slid 0.4% for the month and 2.7% y/y. The PPI for all goods used in construction fell 0.6% and 2.7%, respectively, as the sub-index for energy sank 9.0% and 21%, while goods less food and energy edged up 0.2% for the month and fell 0.5% y/y. The index for services rose 0.5% and 0.8%, respectively. PPIs for inputs to seven categories of new nonresidential structures all declined for the month and year, with y/y decreases ranging from 1.0% for industrial structures to 4.5% for power and communications structures. PPIs for new single- and multifamily construction posted y/y declines of 0.5% and 0.6%, respectively. Materials important to construction that had notable one- or 12-month price changes include diesel, down 7.9% for the month and 35% y/y; steel mill products, -0.3% and -19%, respectively; copper and brass mill shapes, -1.6% and -18%; aluminum mill shapes, 0.6% and -12%; lumber and plywood, 0.2% and -7.3%; cement, 2.6% and 5.6%; and flat glass, 1.1% and 5.9%.

The Architecture Billings Index (ABI) score slipped to 49.6, seasonally adjusted, in January from a revised 51.3 in December (any score over 50 indicates billings growth), the American Institute of Architects reported on Wednesday. (The institute recalculates seasonal adjustment factors each February to incorporate the latest year.) The index measures the percentage of surveyed architecture firms that reported higher billings than a month earlier less the percentage reporting lower billings. "The fundamentals are mostly sound in the nonresidential design and construction market," said Chief Economist Kermit Baker. Based on three-month moving averages, firms with different practice specialties were all close to 50: multifamily residential, 51.9, up slightly from a revised 51.8 in December; commercial/industrial, 50.5, up from 49.9; institutional, 49.9, down from 51.0; and mixed practice, 49.0, up from 46.6.

Housing starts rose 1.8% at a seasonally adjusted annual rate from January 2015 to January 2016 despite a 3.8% decline from December to January and a 2.8% drop the month before, the Census Bureau reported on Wednesday. Single-family starts increased 3.5% y/y but decreased 3.9% from December. Multifamily (buildings with 5 or more units) starts fell 3.8% y/y and 2.5% for the month. Building permits, a fairly reliable predictor over time of near-term starts, especially single-family, jumped 14% y/y but inched down 0.2% for the month. Single-family permits rose 9.6% y/y but fell 1.6% for the month. Multifamily soared 18% y/y and edged up 1.1% for the month. The seasonally adjusted annual rate for multifamily permits for January (442,000) continued to far outpace the rate for starts (354,000), suggesting more projects may begin soon. In contrast, the rate for single-family permits (720,000) slightly trailed starts (731,000).

The hotel construction market continues to thrive but investor concern about overbuilding appears to be rising. "According to the January 2016 STR Pipeline Report [there was] a 13% increase in the number of rooms Under Contract compared with January 2015 and a [17% y/y] increase in rooms under construction," the online newsletter Hotel News Resource reported on Monday. "The Under Contract data includes projects in the In Construction, Final Planning and Planning stages but does not include projects in the Unconfirmed stage." An AGC analysis of Census construction spending data released on February 1 showed that lodging increased 31% in 2015 over 2014 but peaked in June and declined 1.2% from June to December at a seasonally adjusted annual rate. "Investors are shrugging off the lodging industry's best fundamentals in years to dump hotel stocks," the Wall Street Journal reported on Wednesday. "Occupancy rates have climbed steadily to a new all-time high of 66% last year,...according to data tracker STR Inc. Room rates, meanwhile, continue to rise, and hotel revenue is near an all-time high....The success has encouraged developers to start building again after years of somnolence. PricewaterhouseCoopers predicts new hotel supply this year will grow 1.9%, which would be in line with the industry's long-term average. In 2017, supply will expand another 1.9%, STR said."

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.