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AGC's Data DIGest: June 10-16, 2016

Construction input PPIs decline year-over-year but rise in May; more hikes appear likely

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 May, not seasonally adjusted, increased 0.3% from April but fell 0.1% year-over-year (y/y) from May 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, increased 0.1% for the month and 1.9% y/y. The 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 rose 1.9% y/y. Changes ranged from 1.2% y/y for industrial building construction to 1.6% for healthcare buildings, 1.9% for schools, 2.1% for office buildings, and 2.7% for warehouses. PPIs for new, repair and maintenance work on nonresidential buildings fell 0.6% y/y for plumbing contractors and rose 1.6% for roofing contractors, 4.0% for electrical contractors and 4.4% for concrete contractors. The index for inputs to construction—excluding capital investment, labor and imports—comprises a mix of 59% goods (including 5% for energy) and 41% services (including trade services, 26%; transportation and warehousing, 4%; and other services, 10%). The overall PPI for inputs to construction rose 0.5% for the month but fell 2.1% y/y. The PPI for all goods used in construction climbed 0.7% for the month but decreased 3.4% y/y, as the sub-index for energy jumped 8.0% for the month but plunged 26% y/y, while goods less food and energy had no change for the month but fell 0.3% y/y. The index for services rose 0.2% and 0.1%, respectively. PPIs for inputs to seven categories of new nonresidential structures all increased for the month but declined y/y, with y/y decreases ranging from 1.6% for educational and vocational structures to 5.5% for power and communications structures. PPIs for inputs to new single- and multifamily construction posted y/y declines of 1.1% and 0.8%, respectively. Materials important to construction that had notable one- or 12-month price changes include diesel fuel, up 18% for the month but down 28% y/y; copper and brass mill shapes, 2.0% and -16%, respectively; aluminum mill shapes, 1.1% and -7.9%; asphalt paving mixtures and blocks, -2.6% and -7.6%; and steel mill products, 4.6% and -5.2%.

More price hikes for various construction materials appear likely. Steel makers have repeatedly raised rebar and structural steel prices. One reader forwarded a letter it received from a supplier of metal framing products announcing large price increases on both June 1 and July 1. Others have been warned that fly ash, an ingredient in some concrete mixes, is becoming scarce, which may lead to concrete price increases. Readers are invited to send letters to simonsonk@agc.org.

"Hiring plans nationwide remain relatively stable, both quarter-over-quarter and year-over-year" for the July-September quarter (3Q16), after adjusting for seasonal variation, ManpowerGroup reported on Tuesday in releasing its latest quarterly survey of 11,000 U.S. employers. Employers have a positive outlook for 3Q16 in all 13 industry sectors included in the survey except mining. Compared to 2Q16, a "slight decrease in employment levels is expected in the construction, financial activities and wholesale and retail trade sectors. Moderate declines are reported for the same period in the leisure and hospitality and mining sectors. In seven sectors, "hiring intentions remain relatively stable" and "employers in the durable goods manufacturing sector nationwide expect a slight increase in hiring." Regionally, construction is one of five sectors in the West in which employers "anticipate relatively stable hiring when compared with the previous quarter;" one of three sectors in the Northeast and one of four in the South in which employers "report slightly weaker hiring prospects;" and one of three sectors in the Midwest in which "considerably weaker hiring is expected."

Occupancy rates were mixed, while rents grew for five types of income-producing properties in 1Q16, real-estate analysis firm Dividend Capital Research reported on May 31 in its quarterly Cycle Monitor analyzing conditions in more than 50 metro areas. A chart showed nearly all property subtypes were in the expansion phase of the real estate cycle, characterized by new construction along with declining vacancy rates. The exceptions were office—downtown, which was in recovery (no construction despite declining vacancies) and close to expansion, and office—suburban, which was at an earlier stage of recovery (declining rents). Office occupancy dipped 0.1% in 1Q16 and was up 0.5% y/y. Industrial occupancies were flat in 1Q16 and up 0.6% y/y. "Continually expanding internet sales are a major catalyst driving industrial to be ranked the best performing property sector in 2016 according to many different surveys and researchers. The national apartment occupancy average declined 0.1% in 1Q16 and was flat y/y. "New construction completions are higher than demand and new starts continue to accelerate." Retail occupancies were flat in 1Q16 and up 0.3% y/y. Hotel occupancies increased an average of 0.3% in 1Q16 and 1.5% y/y. "Supply continues to grow and online competition does not seem to be taking as big a toll as some had projected."

Inflation-adjusted gross domestic product (real GDP) increased in 41 states and the District of Columbia in 4Q15, the Bureau of Economic Analysis reported on Tuesday. Real GDP by state growth, at an annual rate, ranged from 3.0% in Indiana to –3.4% in Wyoming. "Information; construction; and professional, scientific, and technical services were the leading contributors to real U.S. economic growth....Construction grew 7.6% in [4Q15.] This industry contributed 0.30 percentage point to U.S. real GDP growth and contributed to growth in 46 states and [D.C.]. Alaska, New Mexico, North Dakota and West Virginia were the exceptions. This industry contributed 1.02 percentage point to real GDP growth in Hawaii.

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