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AGC Data DIGest: February 21-25, 2022

War in Ukraine adds to price and supply pressures on oil, metals; other items show mixed patterns

The war in Ukraine and the West’s response are likely to have multiple effects on construction materials costs and availability. The most immediate impact is likely to be on diesel fuel and gasoline prices. The national retail average price of on-highway diesel fuel was $4.05 per gallon on Monday, the Energy Information Administration reported on Tuesday. That was an increase of $1.08 (36%) year-over-year (y/y) and the highest level in almost nine years. By Thursday, the futures price for heating oil (a close proxy for diesel fuel) had jumped 12 cents per gallon over the week. In addition, “Russia is an important producer of copper and aluminum,” the Wall Street Journal reported on Wednesday. “Any difficulties getting those commodities to customers worldwide would cause fresh disruptions to strained supply chains.” Cargo ships in the region have been halted or delayed.

The outlook for other materials is mixed. “The lumber market continues to struggle [with] supply chain disruptions,” New South Construction Supply reported on Wednesday. “Low sitting inventory at mills and extended lead times on shipments are back to being the norm. Pricing continues to climb as availability continues to decline. Import lumber typically used to help offset domestic supply chain issues is also seeing supply chain constraints. Severe logistic and transportation problems at the ports continue. Many of the inbound [European spruce-pine-fir] loads moving through the ports are arriving to their final destination weeks after originally promised. These availability issues and high prices are expected to remain for at least the next four to five weeks. Rebar has stayed flat for another month and pricing remains at the levels set in early December. Inventory remains fairly accessible with mills having more sitting inventory available than in the months prior to the December price increase. The regional mills appear to be on different rolling schedules for each size, so inventory has been slightly easier to acquire if buyers are willing to work across multiple mills. Wire mesh has also remained flat through February. There are rumblings of a potential price increase in the coming months, but nothing has been firmly established on what that increase would look like. Lead times have improved slightly with lead times closer to 8-10 weeks. Expectations are for lead times to remain in this range well through summer. [Polyethylene vapor barrier] has also remained flat over the past month, but like lumber, the lead times have begun to stretch out.” A reader forwarded a price list they received from a materials supplier on Tuesday that listed surcharges for numerous sealants and other materials that ranged from 5% to 50% for deck membrane epoxy. Readers are invited to send information about prices and availability to ken.simonson@agc.org.

“Engineering and construction costs rose for the 16th consecutive month in February,” data firm IHS Markit and the Procurement Executive Group reported on Wednesday. “February also marks the eighteenth consecutive month of rising shipping costs. Due to these rising shipping costs and limited freight availability, many other sub-indices for components have maintained price increases as well,” including copper-based wire and cable, electrical equipment, and transformers. “The materials reported for shortages this month unsurprisingly referred mostly to electrical steel and electrical equipment components.” The sub-index for current subcontractor labor costs rose again, though less steeply than in January.

Construction starts (in dollars, not adjusted for inflation), decreased 2.3% y/y in January, not seasonally adjusted, data firm ConstructConnect reported on February 18. Nonresidential starts declined 4.5%. Nonresidential building starts edged down 9.9% y/y, with commercial starts down 12%, institutional starts down 13%, and industrial (manufacturing) starts up 5.3%. Heavy engineering (civil) starts gained 2.0% y/y, with road/highway up 53%, water/sewage up 2.5%, power and other miscellaneous down 43%, bridges up 8.8%, dams/marine up 37%, and airports up 103%. Residential starts rose 0.4% y/y, with single-family down 2.2% and apartments up 8.2%.

The Architecture Billings Index (ABI), which the American Institute of Architects calls “a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months,” held steady at 51.0 in January from a downwardly revised December reading, the institute reported on Wednesday. “This makes 12 straight months of positive readings for the ABI. However, over this period the pace of growth of the ABI has clearly moderated. For the first nine months of this design recovery, the average ABI score was almost 56, an unusually high level for such an extended period. Over the past three months, the average score was barely over 51. This more modest growth in the ABI no doubt reflects challenges in the construction sector – supply challenges for both labor and materials – as well as ongoing staffing constraints at architecture firms. In spite of this moderation in ABI scores,…new design projects continue to come into architecture firms at a healthy pace. The monthly new design contracts score has exceeded the billings score at firms in 10 of the 12 months since the design upturn got underway, suggesting that project backlogs at firms continue to grow. This expanding backlog will serve as a cushion to ensure healthy future workloads over the coming quarters….Firms in the Northeast continue to see the weakest conditions, reporting five straight monthly declines in billings. Firms in the West are also reporting billings declines in recent months. Firms in the South, however, are reporting accelerating growth in billings activity, and in January saw their strongest monthly increase in billings since well before the Great Recession. Likewise with firm specialization, firms focusing on the commercial/industrial market are seeing billings accelerate, institutional firms are reporting billing declines, while multifamily residential firms are reporting stable business conditions.”

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.