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AGC's Data DIGest: October 25 – November 1, 2013

MHC sees starts improving in 2014; PPI stays mild in September; latest price trends vary

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 here to view September PPI table.
"For 2013, total construction starts are estimated to rise 5%,” McGraw Hill Construction (MHC) reported in its 2014 Dodge Construction Outlook on October 25. For 2014, “it’s forecast that total construction starts will climb 9%....Single-family housing will grow 26% in dollars, corresponding to a 24% increase in units…Multifamily housing will rise 11% in dollars and 9% in units. While growth continues, the percentage gains will be smaller than the previous four years, reflecting a maturing multifamily market. This structure type is still a favored investment target by the real estate finance community, which in the near term should lead to more high-rise residential buildings in major cities. Commercial building will increase 17%, a slightly faster pace than the 15% gain estimated for 2013. Both warehouses and hotels will continue to lead the way, while stores and office buildings pick up the pace….Institutional building will edge up 2%, turning the corner after five years of decline. For the educational building category, colleges are revisiting capital expansion plans, and passage of recent construction bond measures in several states should help K-12 construction projects. Healthcare construction is expected to remain flat, given continued emphasis on cost containment. Public works construction will drop 5%, pulling back after a 3% gain in 2013 that was lifted by the start of several large highway and bridge projects. More focus on deficit reduction will limit federal support for environmental public works, although the improved fiscal position of state and local governments will help to cushion the extent of the public works decline. Electric utility construction will retreat 33%, continuing the 55% correction estimated for 2013 that followed the current dollar high reached in 2012. Capacity utilization is down sharply, limiting the near-term need for new generating capacity. The need for transmission line work remains strong.”

The producer price index (PPI) for finished goods fell 0.4%, not seasonally adjusted (-0.1%, seasonally adjusted), in September and inched up just 0.3% over 12 months, the Bureau of Labor Statistics (BLS) reported on Tuesday. The PPI for inputs to construction—a weighted average of the cost of all materials used in construction plus items consumed by contractors such as diesel fuel—crept up 0.1% for the month and 0.6% year-over-year. The PPI for residential construction inputs edged up 0.2% and 1.2%, respectively, while the index for nonresidential construction was unchanged for the month and up just 0.1% from a year earlier. Three major construction inputs had big year-over-year price increases: gypsum products, up 0.2% in September and 14% over 12 months; lumber and plywood, 1.0% and 9.7%, respectively; and insulation materials, 3.7% and 8.8%. PPIs decreased from a year ago for metals and fuel: copper and brass mill shapes, -0.1% in September and -4.8% over 12 months; diesel fuel, 2.4% and -4.7%; steel mill products, 0.3% and -4.4%; and aluminum mill shapes, 0.5% and -3.0%. PPIs for new nonresidential construction varied widely: the price index for warehouses tumbled 5.7% in September and -3.0% over 12 months; offices, 0 and 1.4%; schools, 0.2% and 1.5%; health care construction, 0.5% and 2.2%; and industrial buildings, 0.2% and 2.6%. The PPIs for new, repair and maintenance work on nonresidential buildings by roofing contractors rose 0.3% and 1.4%; electrical contractors, 0 and 1.7%; concrete contractors, 1.2% and 1.8%; and plumbing contractors, 0.2% and 2.1%.

Recent and upcoming price trends appear mixed. Building materials supplier New South Construction Supply reported on Monday, “prices for most of the items we distribute should remain stable for the next 30 days. The one exception is for rebar, as domestic mills increased prices in mid-October….Unless there is a marked increase in demand or the price for scrap steel rises in early November, the mills are not expected to increase prices in November….As the price for wire rod and plate steel has remained stable for several months and manufacturers are not expected to increase prices this fall, masonry reinforcing and anchor prices should remain unchanged for the remainder of 2013. With no changes expected in their costs for wire rod, concrete reinforcing wire mesh mills have indicated that they plan no price changes for November and probably through the end of the year. Polyethylene…sheeting prices should hold at current levels into December. Prices for southern yellow pine dimensional lumber fell over the past few weeks after increasing in early October, due to weak demand. Most analysts expect SYP prices to hold at or about their current levels for the next couple of weeks and then increase in November. Demand for spruce dimensional lumber continued to remain strong and prices have increased each week since mid-September. As demand for spruce is expected to remain high for the next several weeks expect prices to rise until demand lessens.” In contrast, investment analyst Thompson Research Group reported on October 16 that its survey of aggregate, cement and concrete suppliers found, “Aggregate industry contacts continue to expect to gain pricing for the remainder of the year. Concrete was a more mixed bag, although the majority of contacts are expecting increases. Realistically, it is entirely dependent upon demand in a given region. Cement pricing…expectations are flattish for the remainder of calendar 2013, but industry contacts believe that the early 2014 price increases should be met with relative success given demand trends.”
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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