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AGC's Data DIGest: January 14 – 17, 2014

Prices remain tame; federal funding rises a bit; Beige Book shows optimism

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.

Click to view the December Producer Price Indexes (PPI) table.

The producer price index (PPI) for finished goods inched up 0.1%, not seasonally adjusted (0.4%, seasonally adjusted), in December and 1.2% over 12 months, the Bureau of Labor Statistics reported on Wednesday. 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 – also rose 0.1% for the month and climbed 1.3% year-over-year. That was the smallest yearly increase since 2009, slightly less than the 1.4% rise in 2012. PPIs for inputs to several types of construction showed modest gains for the month and year: residential, 0.1% and 1.6%; total nonresidential, 0.1% and 1.0%; commercial, 0 and 1.0%; industrial, 0.1% and 0.8%; and other nonresidential, 0.1% and 0.5%. For the second year in a row, the largest annual PPI increases among major construction materials were for gypsum products (2.2% in December, 16% in all of 2013, and 14% in 2012) and lumber and plywood (-0.6% in December, 9.7% in 2013, and 11% in 2012). Other PPIs that rose in 2013 included insulation materials, flat for the month but up 7.9% for the year; concrete products, 0.2% and 2.4%; asphalt paving, -0.3% and 1.0%; and construction machinery and equipment, 0.1% and 1.3%. Other major inputs had price decreases in 2013: copper and brass mill shapes, up 1.0% in December but down 6.1% year-over-year; aluminum mill shapes, -0.8% and -4.6%; steel mill products, 0.3% and -1.0%; diesel fuel, 2.9% and -0.9%; and plastic construction products, 0 and -0.6%. PPIs for new nonresidential construction were nearly flat for the month but all rose year-over-year: offices, 0.1% and 2.8%, respectively; warehouses, 0 and 2.9%; healthcare construction, 0 and 3.1%; schools, 0.1% and 3.4%; and industrial buildings, 0.1% and 4.2%. PPIs for new, repair and maintenance work on nonresidential buildings by roofing contractors rose 0.1% and 2.5%; electrical contractors, 0 and 1.8%; concrete contractors, -1.0% and 2.2%; and plumbing contractors, 0 and 4.2%.

The Senate on Thursday passed an appropriations bill to fund federal programs for the rest of fiscal year (FY) 2014, through September. Overall, federal construction funding accounts generally receive either slightly increasing or relatively flat funding in FY 2014, an AGC analysis shows. Contractors should expect a slight increase in overall military construction spending, relative to FY 2013 numbers, which were reduced by the sequester, or “across-the-board” cut. On the U.S. Army Corps of Engineers civil works side, contractors should expect a small spike$723 millionin funding. The General Services Administration receives over $1.5 billion for construction, more than it has received over the last three fiscal years.

Informal soundings of businesses in the 12 Federal Reserve districts “suggest economic activity continued to expand across most regions and sectors from late November through the end of the year,” the Fed reported on Wednesday in the latest Beige Book, so named for the color of its cover. The districts are referenced by the name of their headquarters cities. “Three specific areas of strength in manufacturing were mentioned by multiple districts: commercial aviation, autos and construction materials.” Richmond, Chicago and San Francisco “said that the recovering housing market had led to increased demand for construction materials going all the way from raw materials like lumber to finished products like kitchen cabinets….Residential construction saw slight to moderate increases in most districts; by contrast, Dallas cited a slight decline [in single-family], New York reported no change, and Cleveland cited strong growth.” Atlanta, Cleveland, Chicago and Dallas cited strong multifamily construction. Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco “reported that contacts expected residential construction to pick up in the near term.” All districts reported increases in commercial construction activity in recent weeks, except New York and Dallas, which did not mention it. In Boston and Richmond, “construction activity increased in the education and healthcare sectors. A significant number of commercial high-rise structures are being built (or planned) in [San Francisco]. The outlook for commercial construction activity was positive” in Philadelphia, Cleveland, Minneapolis and Dallas. In Cleveland, “builders reported a scarcity of high-skilled trade workers. As a result, there is upward pressure on wages, and subcontractors are demanding and getting higher rates.” In Kansas City, “some builders indicated difficulties finding qualified labor and said it impeded their ability to start new projects.” In Dallas, “acute labor shortages were reported for auditors, engineers, construction workers and truck drivers….petrochemicals producers noted rising wages for plant maintenance and heavy construction….A Houston housing contact said labor shortages were pushing up wages for construction workers.”

Housing starts in December slid 9.8% at a seasonally adjusted annual rate from November, possibly due in part to bad weather, the Census Bureau reported Friday. The total was 1.6% higher than in December 2012, and starts for the year topped the 2012 total by 18%. Multifamily (5+ units) starts in December sagged 18% from November and 9.6% from a year ago, but the 2013 total was up 20% from 2012. Single-family starts fell 7.0% for the month but rose 7.6% over 12 months and 15% for the year. Building permits fell 3.0% for the month but rose 4.6% from December 2012 and 17% for the full year.

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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