Editor’s note: Construction Citizen is proud to partner with AGC America to bring you AGC Chief Economist Ken Simonson's Data DIGest. Check back each week to get Ken's expert analysis of what's happening in our industry.
The coronavirus outbreak continues to spread globally each day but the impact on U.S. construction remains speculative. So far, there do not appear to be any reports of cancelled, deferred or interrupted construction projects, nor of delays or shortages of construction equipment, parts or materials. However, the disruption to Chinese production and shipping is increasing, adding to the likelihood that some construction products and projects will be affected. Bisnow reported on February 20, “‘For the first time this week I heard from two general contractors that they had materials caught up in ports because of the coronavirus—we’re starting to see some of that,” Hoffman & Associates Executive Vice President Maria Thompson said at a Bisnow event in Washington, D.C.” on February 18. There have also been potentially beneficial impacts on construction. Crude oil prices have dropped by nearly 25% since January 1, which is likely to lead to further price declines for gasoline, diesel and liquid asphalt. Copper and steel prices are also likely to fall as Chinese demand slips. Interest-rate decreases may encourage home buyers, developers, and state and local bond issuers. Readers are invited to email ken.simonson@agc.org to report any coronavirus impacts relevant to construction.
Construction costs rose for the 40th month in a row in February, IHS Markit and the Procurement Executives Group reported on Wednesday. “Both the materials and equipment, and subcontractor labor indexes indicated continued price increases…Survey respondents reported increasing prices for 11 out of the 12 components within the materials and equipment sub-index, with carbon steel pipe pricing turning flat this month after dropping for five consecutive months….‘The coronavirus outbreak…has altered the outlook for raw commodities,’ said John Mothersole, director of research at IHS Markit. ‘Copper's outlook for the first half of 2020 has swung from one of deficit and rising prices to a potential surplus and weak pricing. However, price declines at the commodity level may take up to six months to filter through to semi-finished goods like wire and cable.’”
The Bureau of Labor Statistics (BLS) on February 18 posted producer price indexes (PPIs) for January, calculated from prices gathered in early January (before any impacts from coronavirus). AGC posted tables showing PPIs relevant to construction. The year-over-year (y/y) rate of price increase slowed compared to a year earlier for both inputs to construction (up 2.2% y/y from January 2019 to January 2020, vs. 2.7% a year earlier) and new nonresidential building construction (up 3.7%, vs. 5.3% a year earlier)—a measure of the price that contractors say they would charge to build a fixed set of buildings. Increases in the latter index ranged from 2.9% y/y for new healthcare buildings to 3.2% for office buildings, 4.1% for industrial buildings, 4.6% for warehouses and 4.7% for schools. Increases in PPIs for subcontractors’ new, repair and maintenance work on nonresidential buildings ranged from 2.7% y/y for roofing contractors to 3.5% for electrical contractors, 3.9% for plumbing contractors and 4.3% for concrete contractors. The PPI for inputs to construction covers both goods (55%) and services (45%). The PPI for energy inputs to construction jumped by 12% y/y. The PPI for nonenergy goods inputs edged up 0.5%; the index for services inputs increased 2.6%. Items important to construction with large 1- or 12-month changes include: steel mill products, up 0.3% from December but down 15% y/y 2019; asphalt paving mixtures and blocks, up 7.1% for the month and 1.1% y/y; and diesel fuel, down 8.1% from December but up 7.2% y/y. BLS posted annual updates of tables showing the relative importance of inputs to construction and of construction to overall PPIs. Email ken.simonson@agc.org for BLS tables of relative weights for detailed inputs to various types of construction.
The National Highway Construction Cost Index (NHCCI) in September 2019 increased 0.5% from June and 6.4% y/y from September 2018, based on new and revised values posted by the Federal Highway Administration. The June-September change was a steep deceleration from the 5.5% increase between March and June, but the 6.4% y/y rise matched that of the previous 12 months. The index “is a quarterly price index intended to measure the average changes in the prices of highway construction costs over time and to convert current-dollar highway construction expenditures to real-dollar expenditures….The NHCCI covers the universe of the nation’s highway projects and arrive at an average cost index for all highway construction.”
“Total construction starts slipped 6% from December to January” at a seasonally adjusted annual rate, Dodge Data & Analytics reported on February 18. “All three major categories moved lower in January—residential building starts fell 8%, nonresidential building lost 6%, and nonbuilding starts moved 2% lower. With only one, limited month of data available for 2020, it is difficult to ascribe a 2020 trend. Some perspective can be gleaned, however, by examining a 12-month moving total. For the 12 months ending January 2020, total construction starts were 1% higher than during the previous 12-month period,” with residential building starts 1% lower, nonresidential building starts nearly flat and nonbuilding construction 8% higher.
The Architecture Billings Index inched up to 52.2 in January from a revised December reading of 52.1, AIA reported on February 19. The ABI measures the percentage of surveyed architecture firms that reported higher billings than a month earlier, less the percentage reporting lower billings. Any score below 50 (on a 0-100 scale) indicates a decrease in billings. Scores (based on three-month moving averages) topped the breakeven 50 mark for all practice specialties: mixed practice, 51.6, unchanged from December; commercial/industrial, 51.5, down from 52.0; residential (mainly multifamily), 51.2, down from 51.6; and institutional, 51.1, up from 50.3. All 2019 scores reflect an annual revision of seasonal factors.
All rights reserved. Sign up at http://store.agc.org. Editor: Ken Simonson, Chief Economist, AGC, simonsonk@agc.org.
