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AGC's Data DIGest: January 12-15, 2016

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Input PPIs plunge in 2015; completed structure and subcontractor indexes rise diversely

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 December decreased 0.4% from November on a not-seasonally-adjusted basis (-0.2%, seasonally adjusted) and 1.0% from December 2014, 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 0.1% for the month and increased 1.8% for the year, following increases of 2.2% in 2014 and 3.2% in 2013. 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—also climbed 1.8% in 2015 and 2.2% in 2014. The 2015 increases ranged from 0.5% for healthcare construction to 2.1% for industrial buildings, warehouses and offices, and 2.2% for schools. For the year, PPIs for new, repair and maintenance work on nonresidential buildings fell 1.1% for plumbing contractors and rose 1.7% for roofing contractors, 3.8% for concrete contractors and 5.8% 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.

The PPI for inputs to construction—excluding capital investment, labor and imports—is now a mix of 40% services (including trade services, 25%; transportation and warehousing, 4%; and other services, 10%) and 60% goods (including 7% for energy). The overall PPI for inputs to construction slid 0.7% from November to December and 2.1% for the year. The PPI for all goods used in construction fell 1.2% for the month and 4.2% for the year (following a drop of 0.9% in 2014) as the sub-index for energy plunged 11% for the month and 30% for the year, while goods less food and energy inched down 0.1% and 0.4%, respectively. The index for services was unchanged for the month but up 0.7% for the year. There are now also PPIs for inputs to seven categories of new nonresidential structures and new single- and multifamily construction. In 2015 all of these input PPIs declined, from -0.8% for multifamily to -6.4% for power and communications structures. Materials important to construction that had notable one- or 12-month price changes include diesel, down 23% for the month and 46% for the year; steel mill products, -2.7% and -20%, respectively; copper and brass mill shapes, -5.0% and -19%; aluminum mill shapes, -0.6% and -14%; lumber and plywood, -1.2% and -7.7%; paving mixtures and blocks, -0.6% and -6.5%; asphalt felts and coatings, -1.1% and -5.2%; flat glass, 0.9% and 5.6%; and cement, -0.3% and 6.7%.

The "national average increase in construction cost" was 1.3% from July 1 to October 1, 2015, up from 1.1% in the previous quarter, real-estate consultancy Rider Levett Bucknall reported today, based on data it collected in 12 cities. The cost index increased 4.9% over 12 months, down from 5.2% in the prior 12 months. The index "tracks the 'true' bid cost of construction, which includes, in addition to costs of labor and materials, general contractor and subcontractor overhead costs and fees (profit). The index also includes applicable sales/use taxes that 'standard' construction contracts attract." Quarterly cost increases ranged from 1.0% in Las Vegas and Phoenix to 1.6% in Portland, Ore., and 1.7% in San Francisco.

The value of nonresidential construction starts, not seasonally adjusted, declined 7.0% from December 2014 to December 2015 but edged up 1.9% for all of 2015 compared with the 2014 total, CMD reported on Thursday, based on data it collected. Building starts slumped 9.4% December-to-December and 3.3% for the full year, with institutional down 22% and 7.0%, respectively; commercial, -8.9% and -4.2%; and industrial up 238% and 33%, aided in December when "site work began for Volkswagen's $600 million "sport utility manufacturing plant in Chattanooga, Tenn." Heavy engineering starts dropped 3.3% December-to-December but rose 11% for the year, with full-year gains of 9 to 16% in all subcategories except airports (-2.0%). "The 12-month moving average trend line...shows the curve for nearly all the nonresidential building categories—with retail (i.e., flat) as the only exception—shifting downwards over the last six months to a year. From heavy engineering, the slopes for 'roads/highways,' 'water/sewage' and 'bridge' have been most noticeably on an upward incline."

Reports from the 12 Federal Reserve districts "indicate that economic activity has expanded in nine of the districts since the previous Beige Book report and contacts in Boston were described as upbeat," the Fed reported on Wednesday in its latest "Beige Book," a compilation of informal soundings taken from mid-November to January 4 of business conditions in each district (which is referenced by the name of its headquarters city). "Meanwhile, New York and Kansas City described economic activity in their districts as essentially flat....Residential construction activity was described as modest or moderate in most districts but was more subdued in New York, Atlanta and Dallas overall. Multifamily construction continued to be strong in New York, Richmond, Minneapolis and San Francisco and showed improvement in Chicago....Most districts reported modest or moderate growth in commercial construction and the Dallas district noted high levels of industrial construction in Dallas–Fort Worth. Contacts in the Atlanta district expect construction activity to increase slightly...Cleveland reported that investment in pipeline construction continues unabated....Cleveland, Richmond and Dallas cited mixed reports, ranging from flat to moderate wage pressures. Seven districts mentioned greater wage pressures for skilled workers in a variety of industries, including construction..."

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.