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AGC's Data DIGest: December 10-14, 2018

'Bid price' PPI catches up with input costs in November; job openings climb in October

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The producer price index (PPI) for final demand in November, not seasonally adjusted, decreased 0.3% from October but increased 2.5% year-over-year (y/y) from November 2017, the Bureau of Labor Statistics (BLS) reported on Tuesday. AGC posted tables and an explanation focusing on construction prices and costs. Final demand includes goods, services and five types of nonresidential buildings that BLS says make up 31% of total construction. The PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of buildings—rose 0.2% for the month and 5.3% y/y, the largest 12-month increase since the series began in June 2009. Increases ranged from 4.1% y/y for health care buildings to 4.7% for warehouses, 5.5% for schools, 5.6% for offices and 6.4% for industrial buildings. Increases in PPIs for subcontractors'new, repair and maintenance work on nonresidential buildings ranged from 0.8% y/y for roofing contractors to 5.1% for electrical and plumbing contractors and 6.3% for concrete contractors. The PPI for inputs to construction—excluding capital investment, labor and imports—comprises a mix of goods (56%) and services (44%). This index decreased by 1.1% for the month but increased 4.9% y/y, slightly less than the 5.3% PPI increase for new nonresidential building construction. Increases for inputs to seven nonresidential structure types ranged from 4.2% for industrial structures to 6.2% for highways and streets. PPIs for inputs to new residential structures rose 4.5% y/y for single-family and 5.0% for multifamily. The PPI for services inputs to construction rose 4.4%, while the index for goods inputs (including items consumed by contractors, such as diesel fuel) climbed 5.3% (7.7% for energy and 4.9% for goods less food and energy). Inputs important to construction that had large one- or 12-month price changes include diesel fuel, down 1.4% in November but up 20% y/y; steel mill products, up 0.5% for the month and 20% y/y; asphalt felts and coatings, -0.6% and 9.7%, respectively; asphalt paving mixtures and blocks, -1.8% and 8.8%; architectural coatings, 3.4% and 7.8%;  Readers are invited to send copies of price-change notices to simonsonk@agc.org.  

There were 292,000 job openings in construction at the end of October, 25% higher than the October 2017 total of 233,000, and the highest October total in the series' 18-year history, BLS reportedon December 10 in its latest Job Openings and Labor Turnover Survey (JOLTS) release. Contractors hired 352,000 employees in October, not seasonally adjusted, less than the October 2017 total of 378,000. The jump in openings suggests the industry might have hired more workers if they had been available. But the number of unemployed workers with recent construction experience was the lowest October total since that series began in 2000, BLS reported on December 7—an indication of the difficulty contractors are having in finding workers.

The value of construction starts in November, not seasonally adjusted, tumbled 14% y/y from November 2017, data provider ConstructConnect reported on Thursday, while year-to-date starts for the first 11 months of 2018 combined declined 6.2% from the same period in 2017. Nonresidential building starts plunged 13% y/y and 9.3% year-to-date. Civil (heavy engineering) starts slid 5.5% y/y but increased 7.0% year-to-date. Residential starts slumped 20% y/y and 9.5% year-to-date. 

Several recent announcements suggest private office construction spending will continue to increase. On Thursday, Apple announced "a major expansion of its operations in Austin, including an investment of $1 billion to build a new campus in North Austin. The company also announced plans to establish new sites in Seattle, San Diego and Culver City and expand in cities across the United States including Pittsburgh, New York and Boulder, Colo. over the next three years." On Wednesday, Norfolk Southern announced "plans to relocate its headquarters to Atlanta" from Norfolk. The move "will span the next several years as the new headquarters is constructed." The announcements follow the decisions in November by Amazon to add 25,000 employees each in northern Virginia and New York City and by Google to add 7,000 workers in New York City over 10 years. However, the hiring will not necessarily trigger much construction immediately. "Amazon plans to slowly hire workers rather than overwhelm its new hosts all at once...said people familiar with the matter," the Wall Street Journal reported on Friday. "Before workers can move in, Amazon must remodel temporary offices it is leasing in Long Island City and [Virginia], which will take several months. Amazon already has plenty of office space in both metro areas, so it doesn't have to rush construction, these people said. It could take roughly two years before Amazon breaks ground on its new New York campus, and potentially a little sooner for Northern Virginia."

The outlook for public school construction may be more muted. Spending increased 4.7% in the first 10 months of 2018 compared to the same months of 2017, Census Bureau data posted on December 3 show. School districts, which depend heavily on property tax receipts, are benefitting from increases in residential and commercial property values and widespread passage of bond issues in the past several years. But an AGC analysis of school-age population by school district that Census released on December 3 show that relatively few school districts had an increase large enough to warrant new construction. Many of the largest 5-17-year-old population increases are in districts with older buildings that are being renovated, expanded or replaced. 

Data DIGest is a weekly summary of economic news. All rights reserved. Sign up at http://store.agc.org. Editor: Ken Simonson, Chief Economist, AGC, simonsonk@agc.org