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Construction prices budge little; employment stays flat in August, FMI predicts mild rise
The producer price index (PPI) for finished goods increased 0.4%, not seasonally adjusted (0.3%, seasonally adjusted), in August and 1.4% over 12 months, the Bureau of Labor Statistics (BLS) reported Friday. PPIs for construction inputs and for prices that contractors charge were generally tame. 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—rose 0.3% for the month and 1.4% year-over-year. The PPI climbed 0.3% and 1.7%, respectively, for residential construction inputs and 0.5% and 1.2% for nonresidential construction. Among major construction inputs, the biggest year-over-year price increase occurred for gypsum products, up 14%, despite a drop of 0.2% from July. Other prices that increased over the year included lumber and plywood, up 1.8% for the month and 9.0% over 12 months; insulation materials, 2.3% and 3.9%; concrete products, 0 and 3.1%; and asphalt paving mixtures and blocks, 0.8% and 0.6%. The PPI for copper and brass mill shapes jumped 4.4% in August but was still down 1.3% from a year ago. The PPI for steel mill products inched up 0.1% for the month but fell 3.4% year-over-year, while the index for aluminum mill shapes decreased 0.6% and 2.4%. PPIs for new nonresidential construction were subdued: schools, 0 in August and 1.2% year-over-year; offices, -0.1% and 1.3%; health care construction, 0.2% and 1.6%; industrial buildings, 0.1% and 2.3%; and warehouses, 0.1% and 2.8%. The PPIs for new, repair and maintenance work on nonresidential buildings by roofing contractors rose 0.1% and 1.3%; concrete contractors, 0.2% and 1.6%; electrical contractors, 0 and 1.7%; and plumbing contractors, 0.3% and 1.9%.
Nonfarm payroll employment increased by 169,000, seasonally adjusted, in August and 2,206,000 (1.6%) over 12 months, the Bureau of Labor Statistics (BLS) reported on September 6. Construction employment totaled 5,798,000, unchanged from the revised July estimate and up by 168,000 (3.0%) over the past year. Total hours worked in construction (aggregate weekly hours) increased by 4.1% since August 2012, implying that contractors are both lengthening working hours slightly and hiring new workers. Residential construction employment (residential building and specialty trade contractors) climbed by 4,300 for the month and 97,100 (4.7%) for the year. Nonresidential employment (building, specialty trades, and heavy and civil engineering construction) fell by 3,400 in August but rose by 71,000 (2.0%) year-over-year. Architectural and engineering services employment, a harbinger of future demand for construction, rose 2.1% over the year. The unemployment rate for jobseekers who last worked in construction tumbled to the lowest August level in five years—9.1%, down from 11.3% in August 2012 and 17.0% in August 2010. (Industry unemployment data are not seasonally adjusted and should only be compared year-over-year, not across months.) Since August 2010 the number of unemployed construction workers has dropped by 725,000. But construction employment rose by only 266,000, implying that many experienced workers have left the industry for employment elsewhere, further training or schooling, retirement or have left the workforce. These departures may make it hard for contractors to find skilled workers if demand picks up, even though the unemployment rate is currently higher than for the overall economy and wage growth and job openings do not yet signal any tightness nationally.
"Our overall 2013 forecast for U.S. construction put in place [growth] has been revised down [from 9% in] 2012 to 6% for 2013,” the consultancy FMI wrote in its third-quarter 2013 Construction Outlook released last week. “The revised figure for total construction put in place for 2013 is $909.6 billion, but we expect growth to return to 7% in 2014 and hit $977.1 billion. While we expect residential to continue its growth trend—but not at the rate of 2013—growth in all other markets will slow in 2014. Nonetheless, construction is once again outpacing [gross domestic product] growth and should continue to do so for the forecast period. Growth in lodging construction will moderate in 2013, but still increase by 15%, overall a long way from the boom years prerecession, but everything ‘looks like up’ from where it was a few years ago. Transportation construction will continue to grow faster than overall construction, but may be slowed due to reduced government subsidies.”
The Dodge Momentum Index, “a monthly measure of the first (or initial) report for nonresidential building projects in planning,” advanced 1.4% in August, McGraw Hill Construction reported last Monday. The index “has been shown to lead construction spending for nonresidential buildings by a full year. The Momentum Index had essentially leveled off during June and July, following the steady gains that were reported during the first five months of 2013. With the August increase, the Momentum Index resumed its upward track, and is up 27% compared to the same month a year ago. While the overall economy remains sluggish, the prospects for commercial development continue to show improvement, as reflected by the growing volume of projects at the planning stage and such strengthening market fundamentals as occupancies and rents. The August Momentum Index was bolstered by an upturn for its commercial segment, which climbed 3.7%....The institutional segment of the Momentum Index, meanwhile, retreated 0.7% in August, marking its first monthly decline since February.”
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