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AGC Data DIGest: June 6-14, 2022

Bid price rise matches 12-month cost increase but inputs rise faster in May, pressuring profit margins

Contractors’ bid prices rose at roughly the same rate as their input costs for the first time since September 2020, according to Bureau of Labor Statistics data posted today. However, for the month, the change in input costs in May outran the change in bid prices, implying pressure on contractors’ profit margins will persist. Specifically, the producer price index (PPI) for material and service inputs to new nonresidential construction increased 1.9% for the month and 18.9% y/y. The PPI for new nonresidential building construction—a measure of the price that contractors say they would bid to build a fixed set of buildings—rose 0.4% for the month and 19.3% y/y. Costs rose faster than bid prices for a wide range of inputs in the cost index: diesel fuel, up 12% for the month and 85% y/y; liquid asphalt, 16% and 80%, respectively; steel mill products, 11% and 33%; architectural coatings, 0.8% and 32%; aluminum mill shapes, -3.8%% and 31%; plastic construction products, 1.7% and 30%; truck transportation of freight, 2.9% and 26%; and gypsum building materials, 7.9% and 24%. Several other input PPIs rose at double-digit y/y rates: prepared asphalt and tar roofing and siding products, 2.0% for the month and 19% y/y; insulation materials, 0 and 17%, respectively; paving mixtures and blocks, 2.4% and 16%; and construction machinery and equipment, 0.3% and 12%. In contrast, the PPI for lumber and wood products slumped 15% y/y despite rising 1.4% May. Bid prices, as measured by PPIs for new buildings, fell 0.1% for the month but climbed 31% y/y for new warehouse construction; increased 0.9% and 23%, respectively, for industrial buildings; 0.6% and 19% for offices; 0.1% and 15% for health care buildings; and was unchanged for the month but up 15% y/y for school buildings. PPI increases for new, repair, and maintenance work by subcontractors amounted to 0.3% for the month and 20% y/y for concrete contractors; 1.0% and 18%, respectively, for roofing; 0.5% and 15% for plumbing; and 0.7% and 12% for electrical contractors. AGC posted tables of construction PPIs.

There have been mixed changes in prices for construction inputs since BLS collected prices for PPI calculations around May 11. The Energy Information Administration reported on Monday that the national average retail price of diesel fuel was $5.72, an increase of 9.5 cents (1.7%) in the past five weeks and $2.43 (74%) from a year ago. An Illinois-based mechanical contractor reported on May 26 that manufacturers of rooftop air-conditioning units had raised prices anywhere from 20% to 50%, in part to meet new efficiency requirements. Lead times for 7.5-ton to 27.5-ton units from one manufacturer were approximately 25 weeks. An Ohio-based contractor received a notice from a ready-mix concrete and stone supplier on June 1 that “all aggregate will increase approximately 5%,” effective June 1, “ready-mix concrete will increase an additional $4” per cubic yard, effective July 1, and “fuel surcharge will be $25 per load (subject to change).” Readers are invited to send price and availability information to ken.simonson@agc.org.

One category of costs that may improve soon is freight charges, Cass Information Systems reported on Monday, “2022 has featured a big improvement in driver availability, and a flattening of freight demand. This is a deflationary combination, though it will take several months to filter from the spot market into contract rates.” However, any decrease in underlying freight rates is likely to be tempered by fast-rising diesel fuel surcharges.

The Dodge Momentum Index rose 7% in May from an upwardly revised April reading and 17% y/y, Dodge Construction Network reported on June 7. The index “is a monthly measure of the initial report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. In May, the institutional component of the Momentum Index rose 9% [and 8% y/y], and the commercial component increased 6% [and 24% y/y]. May’s increase in the Dodge Momentum Index pushed the level of planning above the most recent cyclical high in November 2021. During the month of May, commercial planning was led higher by an increase in office and hotel projects. Institutional planning was boosted by an increase in education and healthcare projects entering planning.”

“Over the past 12 months, the cost to multifamily developers of compensating their employees increased by an average of nearly 12%,” the National Association of Home Builders (NAHB) reported on May 30, based on results from its latest Multifamily Market Survey (MMS). “The first quarter 2022 MMS, sent electronically to a panel of multifamily developers on April 12, included a special question on how much compensation costs have increased for nine specific job categories. At the top of the list, the cost of compensating senior project managers increased by an average of 14.8% over the past 12 months, followed by the costs of compensating construction superintendents or supervisors (14.3%), project managers (12.6%), and project engineers (11.9%)…. Averaged across all nine job categories listed in the survey, costs of compensating the employees of multifamily developers increased by 11.9% [y/y]. This is considerably higher than the 4.5% [y/y] increase in compensation costs for all civilian workers recently reported by” BLS.

“Following the aftermath of COVID-19, home buyer preferences for the suburbs have eased,” NAHB reported on June 7, based on its Home Building Geography Index. “On a four-quarter moving average, [y/y] basis, large metro suburban counties’ single-family construction’s market share dropped from the first quarter of 2021 by 1.3 percentage points to 24.8%. Large metro core counties’ market share dropped by 0.3 percentage points to 16.6%. All other regions, which can be grouped as ‘lower-density submarkets,’ captured the above market share decreases. Large metro areas’ outlying counties’ market share increased the most, by 0.5 percentage points to 9.6% and non-metro, non-micro counties increased the least, by 0.1 percentage points to 4.2%.”