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AGC's Data DIGest: September 23-29, 2014

Cost increases widen, three surveys report; AIA finds billings rise, stalled projects revive

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.

Current construction costs increased for the 32nd consecutive month in September,” IHS and the Procurement Executives Group (PEG) reported last Wednesday.  “The headline current IHS PEG Engineering and Construction Cost Index (ECCI) registered 57.8% in September, up from 53% in August, and by a narrow margin, the highest reading since March 2013….The materials/equipment component of the ECCI strengthened to 59.0%, up 5.5 [percentage points] from August….all 12 components show[ed] higher prices, following an August reading that showed six components either neutral or falling. Alloy steel pipe registered the highest reading in September, [as it has] for six of the last eight months. While not widespread, there was noted concern over fabricated structural steel shop capacity, which could indicate tightening lead times and by extension, upward pricing pressure. ‘Ready-mix concrete prices also remained elevated in the September survey,’ said Charlie McCarren, pricing and purchasing analyst for IHS. ‘This is in line with August’s anecdotes that higher prices appeared to be mainly focused in the Gulf Region, due to delivery issues and labor contracts.’…The current subcontractor labor index also strengthened to 54.9% in September, up from 51.8% in August. The U.S. South and Western Canada saw the strongest movements over August. Respondents again expressed concerns over tightness in skilled labor markets in the Gulf Coast region, specifically referencing qualified welders...The six-month headline expectations index grew to 72.4% in September, up 4.8% over August. Both the materials/equipment and subcontractor labor components showed stronger readings over last month. The materials/equipment portion registered 73.7%, with pockets of strength again focused in alloy pipe and ready-mix concrete.” AGC today is closing out a survey of contractors regarding worker availability; click here to participate.

Price increases for construction materialscontinue to be announced for most major product categories we sell,” according to the September issue of New South Construction Supply eNews, posted on Friday.  “Extruded polystyrene insulation manufacturers Owens Corning and Pactiv announced in September an 8% price increase for October. …Polyethylene sheeting manufacturers increased prices the first week in September by 5% due to the industry-wide August resin price increase. Resin manufacturers increased prices in September and if the resin increase sticks, expect polyethylene sheeting manufacturers to increase prices again in October or in early November. Advanced Drainage Systems, the largest domestic manufacturer of polyethylene corrugated drainage pipe, increased prices on August 28 between 3 and 5% on all pipe and fittings. Other manufacturers followed ADS’s lead and increased prices as well. Polyolefin under-slab vapor barrier manufacturers increased prices by approximately 5% in mid-September, due to increased costs for resins. As with polyethylene, if the September resin price increase holds, polyolefin under-slab vapor barriers are likely to increase prices again in October or November. Tremco, one of the largest manufacturers of joint sealants, waterproofing, and air barrier products,…announced they will increase prices between 3.5% and 6% effective October 15. CETCO, another major manufacturer of waterproofing products, also announced they will increase prices on selected products effective October 1.”

Construction consultancy Rider Levett Bucknall’s National Construction Cost Index increased 1.4% from April to July and 4.3% over the July 2013 level, “which, combined with other notable increases in 2014, indicates that a potential significant uptick in construction costs may be looming,” the firm reported this week. “Much of this increase can be attributed to the lack of available skilled construction workers to support increased demand within the industry – a trend that will most likely become more severe as demand continues to grow. [The 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.” Honolulu had the largest April-July cost increase (3.1%) of the 12 cities in the index; Los Angeles had the smallest (0.7%).

Business conditions continued to improve at architecture firms in August, although the ABI [Architecture Billings Index] score of 53.0 (any score over 50 denotes billings growth) indicates that firm billings increased at a slightly slower pace in August than in July,” when the ABI hit a seven-year high of 55.8, the American Institute of Architects (AIA) reported last Friday.  “However, the outlook for the coming months remains positive, as the value of signed design contracts, which indicates upcoming work in the pipeline, continued to increase this month, and inquiries into new projects remained strong as well….Firms of all specializations also reported improving business conditions for the third consecutive month. Conditions have been positive for firms with a residential and commercial/industrial specialization for all of 2014 so far, but firms with an institutional specialization spent much of that time experiencing softening billings, and only recently have started to recover. [The ABI] provides an approximately nine- to 12-month glimpse into the future of nonresidential construction spending activity.” In the latest survey, 76% of respondents indicated “that they had major design projects that were significantly delayed or cancelled for economic/financing reasons, [while 32% reported] that they had projects stalled due to financing issues that have now resurfaced in the last year as substantially the same projects as originally conceived. [34% believe] that more than one-quarter of their stalled projects will proceed to construction, and 37% believ[e] that at least 10-25% of these projects will proceed. Fewer than 30% of firms think that less than 10% of stalled projects will proceed to construction.”

The next Data DIGest will be released the week of October 20.

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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