PPI falls in 2014; mixed price changes loom; nonresidential construction pay accelerates
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.
If you have not already, please help AGC craft its 2015 Construction Business Outlook and take this short survey.
The producer price index (PPI) for final demand decreased 0.4%, not seasonally adjusted (-0.3%, seasonally adjusted), in December and increased 1.1% for the year, the Bureau of Labor Statistics (BLS) reported on Thursday. 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, was flat in December and increased 2.1% over 12 months, following a 3.2% rise in 2013. 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 was unchanged for the month and up 2.1% for the year, after a 3.3% increase in 2013. The PPI for new healthcare construction slipped 0.1% in December and rose 1.3% in 2014 (4.1% in 2013); industrial buildings, -0.2 and 1.8% (4.1% in 2013); offices, 0 and 2.1% (2.8% in 2013); schools, 0.1% and 2.3% (3.4% in 2013); and warehouses, 0.4% and 2.6% (2.9% in 2013). PPIs for new, repair and maintenance work on nonresidential buildings by electrical contractors rose 0.1% and 1.0% (1.8% in 2013); concrete contractors, 0.1% and 1.9% (2.6% in 2013); plumbing contractors, 0 and 2.2% (4.9% in 2013); and roofers, 0 and 4.7% (1.7% in 2013). 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 1.4% in December and 0.9% over the year (it rose 1.3% in 2013), the first full-year decline since 2001. Materials with notable one- or 12-month price changes included diesel, -15% and -26%, respectively; copper and brass mill shapes, -1.3% and -4.5%; gypsum products, -3.8% and 5.0%; concrete products, 0.9% and 5.0%; cement, -0.2% and 6.1%; and aluminum mill shapes, 1.1% and 11%.
Mixed changes are likely in early 2015 for construction materials prices. The PPI for diesel fuel appears sure to tumble again in January, as the national average retail price of highway diesel fell 48 cents (14%) from December 8 to January 12, the Energy Information Administration reported on Monday. Copper futures declined 11% from December 16 to January 15. But a quarterly survey of building product suppliers released on Monday by investment research firm Thompson Research Group found fourth-quarter 2014 "pricing is either unchanged or improved sequentially, including steel studs, wallboard, ceiling tiles, insulation, non-res roofing and flooring (carpet and hard surface). 2015 price increases in steel studs, wallboard, insulation, ceiling, vinyl tile flooring have already been announced and some are in the process of being implemented."
Wages accelerated in nonresidential construction in 2014, an AGC analysis of BLS data shows. Average hourly earnings in the entire construction sector rose 1.8% from December 2013 to December 2014, nearly the same as in 2013 (1.6%) and 2012 (1.7%). But this apparent stability is due to a deceleration of wages in residential building construction to 3.0% (from 6.5% in 2013 and 3.3% in 2012) along with an increase in the share of construction employment represented by lower-wage residential building. (Residential building construction employment increased 7.0% in 2014; residential specialty trades employment rose 5.6%; and nonresidential building, specialty trades and heavy and civil engineering construction employment grew by a combined 4.3%.) Average hourly earnings in nonresidential building construction rose 4.4% in 2014 (up from 1.5% in 2013 and 0.6% in 2012); in heavy and civil, 4.1% (up from 1.1% in 2013 and 2012); and in specialty trades, 1.8% (up from 0.6% in 2013 and 0.2% in 2012.) (BLS does not break out specialty trade employees' average hourly earnings between residential and nonresidential.) These accelerating increases in wages are consistent with reports from contractors that they are paying more in base wages, overtime, signing and completion bonuses, and travel pay (per diems).
The value of nonresidential construction starts jumped 11% from December 2013 to December 2014 and 7.5% for all of 2014 compared with 2013, CMD (formerly Reed Construction Data) reported on Wednesday, based on data it collected. Nonresidential building starts increased 12% December-over-December and 6.3% for the full year. Institutional building starts increased 3.1% and 7.6%, respectively, while commercial building starts rose 27% and 3.3%. Heavy engineering starts climbed 9.9% and 9.6%, led by increases of 7.3% and 15% for road/highway construction.
"Reports from the 12 Federal Reserve districts suggest that national economic activity continued to expand during the reporting period of mid-November through late December, with most districts reporting a 'modest' or 'moderate' pace of growth," the Fed reported on Wednesday in its latest "Beige Book," a compilation of informal soundings of business conditions in the districts (which are referenced by the name of their headquarters cities). "Single-family residential real estate sales and construction were largely flat on balance across the districts....Commercial construction activity increased in most districts. Activity grew modestly in the Philadelphia district and a bit faster in the Atlanta and Chicago districts. Atlanta cited the multifamily residential segment as a source of growth, while Chicago credited demand for industrial and office buildings. Commercial builders in the Cleveland district reported a moderate to robust increase for projects in the pipeline. Dallas reported that overall commercial construction was strong. San Francisco reported that multifamily residential construction was strong in many areas of that district and that retail, office, industrial, or infrastructure projects were widespread across that district....several districts reported that the cost of a variety of construction materials increased."
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.