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AGC Data DIGest: October 10-18, 2022

Bid prices outpace input costs in September but several costs jump; new supply problems emerge

Contractors' input costs declined again on balance in September, while bid prices rose, according to Bureau of Labor Statistics (BLS) data posted on October 12. Specifically, the producer price index (PPI) for material and service inputs to new nonresidential construction dipped 0.2% for the month, while 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%. The bid-price index rose 24.1% year-over-year (y/y), while the input index climbed 12.6%. Despite the recent decline in some input prices, the y/y gain still exceeds the increase that consumers or most businesses have experienced: the consumer price index rose 8.2% y/y and the PPI for final demand (all industries) climbed 8.5%. Furthermore, input costs varied greatly. Significant declines occurred last month in the PPIs for steel mill products, -6.7%; lumber and plywood, -4.3%; and aluminum mill shapes, -1.6%. Prices jumped by 11.7% from August for diesel fuel and increased by 1.1% each for copper and brass mill shapes and ready-mixed concrete and by 1.0% for cement. AGC posted tables of construction PPIs.

Diesel prices have continued climbing since BLS collected prices for PPIs on September 11. The national average retail price soared to $5.339 per gallon on Monday, a leap of 50 cents in the past two weeks and $1.67 (45%) from a year ago, the Energy Information Administration reported on Monday.

New supply-chain problems continue to crop up. Barges on the Mississippi River have been sidelined by drought-caused low water levels, limiting movements of cement and other heavy construction materials. Separately, contractors around Chicago and Milwaukee have reported being put on allocations of cement as low as 60% of 2021 deliveries. Damage from Hurricane Ian has worsened an existing shortage of transformers. Some “utilities have been reporting wait times of over a year to get transformers, and say costs have skyrocketed from $3,000 to $4,000 per transformer before the shortage, to more than $20,000 each now,” the Route Fifty newsletter reported on August 16. A survey by the American Public Power Association (APPA) found “small transformers were the item the utilities most needed, followed by larger transformers, conduit and utility poles. The community power companies reported that the wait times for small transformers had grown from three months to at least a year, [said Corry Marshall, APPA’s senior director of government relations.] Since then, several APPA members have said the delays have grown to as long as two years, he added.” Readers are invited to send cost and supply-chain information to ken.simonson@agc.org.

The value of construction starts in current dollars (i.e., not inflation-adjusted) increased 8.1% y/y in September, not seasonally adjusted, data firm ConstructConnect reported today. Nonresidential building starts rose 7.2% y/y, with institutional starts up 8.4%, commercial starts up 2.7%, and industrial (manufacturing) starts up 9.1%. Engineering (civil) starts soared 50.5% y/y, with roads up 65%, water/sewage up 32%, bridges up 117%, dams/marine down 15%, power and miscellaneous civil down 22%, and airports up 166%. Residential starts declined 8.4% y/y, with single-family down 18% and apartments up 20%. ConstructConnect’s Expansion Index, a measure of the y/y change in the total dollar value of multifamily, nonresidential building, and engineering construction projects in planning, increased for the U.S. as a whole in October for the sixth consecutive month. The index signaled expansion for 47 states and D.C., with Idaho having the strongest reading, and contraction in Wisconsin, New Mexico, and Washington.

Open-shop “contractors anticipate skilled craft hourly wage increases of 4.52% in 2022 (4.39% excluding zeros),” construction compensation firm PAS, Inc. reported today. “Actual increases for 2021 were 4.42% (including zeros) and 4.65% (excluding zeros). These increases are across the board for all craft, contractor types, sizes, and regions of the country. WorldatWork reports 2022 actual construction increases at 4.1%. Historically, survey participants projected numbers are slightly lower than the actual year-end figure…. The 2021 projected (3.21%) and actuals (4.65%) were way off, ending up 1.44% higher for all crafts combined.”

The “first year of new settlements reached from January through September of 2022 (2022-Q3) for union craft workers in the construction industry had an average increase of 3.8%,” the Construction Labor Research Council (CLRC) reported on Wednesday. “All data in this report are based on the total package (wages, fringe benefits and other employer payments)….settlements grew by 1.0 percent[age point] from 2020 to 2022-Q3, a steep rate of growth. In comparison, the last time first-year settlements increased by 1.0 percent[age point] it took seven years, from 2012 to 2019. High inflation has impacted union craft pay rates more than two other recent factors—the craft labor shortage and COVID-19. CLRC projects future new settlements to average approximately 4.2% by 2024.” Among the nine Census Bureau regions, increases ranged from 3.1% in the West North Central region to 5.2% in the Northwest. Among 16 crafts, increases ranged from 3.2% for sheet metal workers to 4.8% for teamsters. “The average total package increase in 2022-Q3 for all contract years for union crafts in construction was 3.1%. CLRC projects increases to reach approximately 3.7% by 2024. These results are lower than…first-year only settlements since they reflect many more settlements and include data from 2021, 2020 and even earlier (prior to the recent uptick in increases).