A Sustainable Workforce Starts With You

AGC's Data DIGest: October 5-13, 2015

Materials suppliers have mixed pattern on pricing; union pay accelerates slightly

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.

Prices for construction materials have shown mixed tendencies lately. On Friday, securities analyst Thompson Research Group (TRG) reported the results of its monthly survey of building products firms. "All attempts for price increases in 2015 [for steel studs] have been lackluster, driven more by the reality of a precipitous drop in global steel prices....CertainTeed squashed the fall [insulation] price increase after announcing a January 2016 increase. [The] 5%-8% mid-year residential roofing price increase got off to a good start but fizzled by September. [As the third quarter of 2015] comes to a close, pricing has remained stable for both" roofing and carpeting. "We don't expect any wallboard pricing gains until next spring....Perversely, the industry could realize greater pricing in 2016 with two price increases if the current trajectory of end-market demand continues." On Wednesday, TRG reported, "Aggregate pricing building momentum as 1) volumes improve and 2) balance of base/fines/clean stone is significantly improved. Cement pricing discussions for 2016 are already in the works—on average increases are for $8-$15/ton." AGC members in eastern Missouri and Georgia sent copies of letters they received on September 25 and October 1 from concrete suppliers announcing price increases of $8 and $12 per cubic yard, respectively, effective January 1 and 15, along with increases in other concrete products. Readers are invited to submit documentation of price changes to simonsonk@agc.org.

Local union wage and benefit agreements in January-September 2015 averaged 2.5% increases for the first year and 2.6% for the second and third years, the Construction Labor Research Council reported, based on its own analysis. "First-year increases to date in 2015...continued the upward trend which began in 2011 [when they averaged 1.7%]. However, the second and third years...generally have been flat since 2011." There was little variation among 12 crafts.

From April 1 to July 1 "the national average increase in construction cost was approximately 1.15%," consultancy Rider Levett Bucknall reported on October 2, based on its quarterly survey of 12 cities. "Honolulu again experienced the greatest increase,...almost 2.8% for the period. All other...locations experienced inflation between 0.8% and 1.25%." The U.S. year-over-year increase was 5.3%, up from 4.3% a year earlier. "Our Comparative Cost 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."

College and university construction spending has risen overall but also evolved. Census Bureau data posted October 1 show a 14% increase in January through August compared with the same year-to-date period in 2014 for both state-and-local and private higher-education construction spending. But "Moody's Investors Service in September warned investors to expect closures at public and not-for-profit colleges to triple by 2017 from an average of five a year over the past decade, concentrated among the smallest schools," the Wall Street Journal reported on Friday. "Some small schools have experienced several years of shrinking class sizes. [Many] schools without strong financial footing—or those in categories perceived to be susceptible to financial pressure...have put off facility upgrades since the financial crisis and now face massive deferred maintenance backlogs, or need cash to pay for capital projects that could make them more attractive to potential students."

"The Dodge Momentum Index moved 5.8% higher in September" from its August reading, Dodge Data & Analytics reported on Wednesday, based on data it collected. "The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The impetus behind September's gain was a 12% increase from the previous month in institutional building planning. State and local budgets, which finance many projects in the institutional category, continue to recover from their recessionary weakness. With this support, planning for new institutional buildings has trended upward over the past year, although in a saw-tooth pattern. Commercial construction, on the other hand, is at a more mature stage of its recovery and planning has been relatively more stable. Planning in the commercial category increased 1.8% in September."

ACEC, a trade association for engineering companies, reported on October 5 that its "Engineering Business Index (EBI) has fallen for five consecutive quarters, reflecting a decline in long-term expectations among engineering firm leaders for the U.S. economy as a whole and the engineering industry in particular. The latest EBI survey, conducted September 8-30, of engineering firm leaders from throughout the country, produced a composite score of 62.4. Although that number is still solidly positive—any score over 50 indicates growth—it is 1.2 points lower than the second-quarter score and 6.4 points lower than the third quarter of 2014, which was a recent high point. EBI is a diffusion index that charts the health of the engineering industry by consolidating senior leadership responses on market and firm performance into a single composite score.... Looking forward 12 months, CEO confidence climbed for only two private market sectors: Energy and Power...and Health Care Construction....Land Development remains the strongest sector, but the score still fell by 1.5 points to 72.1. In public market sectors, CEO expectations for Transportation rose..., possibly reflecting hope for a new highway bill or satisfaction with state initiatives, as did Water and Wastewater [and Environmental] sectors. The Education sector is languishing, down 5.4 points to 50.0 in the private market sector and down 1.2 points to 52.6 in the public market."

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at http://store.agc.org.