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AGC's Data DIGest: December 9-11, 2020

PPI cost squeeze eases in November but steel, lumber prices jump in recent weeks; job openings slide

A cost squeeze for contractors eased slightly in November as the producer price index (PPI) for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of buildings—inched up 0.1% October, while the PPI for inputs to new nonresidential construction held steady after six months of increases, the Bureau of Labor Statistics (BLS) reported today. AGC posted tables showing PPIs relevant to construction. Despite the small pickup in November, the “bid price” PPI has edged up only 0.2% since April, while the new-construction input price index has increased 6.3%. The input price index for new residential construction has risen even more since April: 8.6%, driven in part by a 29% jump in the PPI for lumber and plywood over seven months and 28% over 12 months (although that index declined 15% from September to November). Over 12 months, the PPIs for inputs to new residential construction climbed 6.6%; inputs to new nonresidential construction, 2.3%; and “bid prices”, 1.3%. Items in addition to lumber and plywood that are important to construction with large 1- or 12-month changes include: copper and brass mill shapes, 1.8% for the month and 12% year-over-year (y/y); aluminum mill shapes, 0.3% and -5.1%, respectively; and diesel fuel, 6.8% and -10%.

Steel prices have moved up sharply since the PPI data was collected in the week of November 11. Readers have forwarded letters from mills and suppliers in the past week that announced price increase—some for the second or third time this fall—for rebar, rod, mesh, tube, and beam products. Large jumps in steel scrap prices augur possible further increases for steel products from mini mills, which use scrap as the principal raw material. Lumber prices have done an N-turn, rising steeply again in recent weeks as they did in the summer, with a precipitous decline in between. On December 1, the Commerce Department announced a reduction from 20% to 9% in the tariff on Canadian softwood lumber, which may contribute to further price reductions. But strong demand from homebuilders and remodelers may keep prices high. Readers are invited to send input price information to ken.simonson@agc.org.

Contractor readers are invited to complete the 2021 AGC of America/Sage Hiring and Business Outlook Survey by 5 pm ET today, Friday, December 11. Results will be reported on Thursday. January 7.

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.

There were 230,000 job openings in construction, not seasonally adjusted, at the end of October, down 29% from the 325,000 openings in October 2019, BLS reported on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. October was the eighth consecutive month in which openings declined y/y, in most cases by more than 20%. Hires in October totaled 403,000, down 18% y/y. Layoffs and discharges slid 21% y/y to 210,000. Quits shrank by 33% y/y to 136,000. JOLTS data combines nonresidential construction with residential; the latter most likely accounts for a disproportionately large share of hires and openings.

Construction starts (dollars) plummeted 20% y/y from November 2019 to November 2020 and 18% year-to-date, data firm ConstructConnect reported today. Nonresidential building starts fell 38% y/y and 32% year-to-date (commercial, -44% and -33.5%, respectively; industrial [manufacturing], -89.5% and -68%; and institutional, -14% in each interval). Engineering (civil) starts sank 5.3% y/y and 17% year-to-date. Residential starts fell 4.8% y/y and 2.5% year-to-date (apartment, -54% and -27%; single-family, 25% and 9.5%).

“The migration out of large cities…has accelerated during the pandemic,” the Wall Street Journal reported on Wednesday. “While some are fleeing for the comforts of the suburbs, moving trucks are also rolling into cities such as Austin, Sacramento, Charlotte, Phoenix and Salt Lake City….For every person who moved to the Bay Area from Austin between April and October, 2.9 people moved in the other direction, according to an analysis from LinkedIn. That is a 39% increase from a year earlier. For New York, the ratio was 2.2, up 45% from a year earlier. Austin’s overall population inflow-to-outflow ratio [1.5] was the highest among 47 metropolitan areas analyzed by LinkedIn.” Austin was closely followed by Phoenix, Nashville, Tampa Bay, and Jacksonville. Metros with an unfavorable inflow-to-outflow ratio of less than 1 include Cleveland, Chicago, and San Francisco, 0.9 each; New York and Hartford, 0.8 each.

“Multifamily construction shifted into less dense markets during the third quarter [Q3] of 2020,” the National Association of Home Builders reported on Thursday. “The multifamily data confirm that these shifts in demand are not just occurring for single-family home building but for all forms of residential real estate in response to the increase in telecommuting and other virus crisis impacts. Historically, multifamily building market shares have been the highest for large metro area core (40%) and suburban counties (26%) and small metro area core counties (22%)…However, these gains ended for large metro areas as the COVID-19 crisis took hold. As of [Q3], core counties of large metro areas posted a multifamily residential construction decline of 4.2% (on a moving, four-quarter average basis) while suburbs of large metro areas experienced a greater decline of 4.9%. In contrast, during [Q3] multifamily construction expanded in more affordable markets, continuing a trend that started in [Q2]. The market share for apartment construction in small metro core areas increased from 21.4% in [Q2] to 22.4% in [Q3], a significant gain considering how slowly regional submarkets’ compositions change. In fact, the largest gains in multifamily development during [Q3] were experienced in small towns” (19%) and rural areas (23%).

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.