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AGC's Data DIGest: January 11-15, 2021

Construction cost squeeze tightens in December, PPI, Beige Book, ISM suggest; starts plunge

A cost squeeze for contractors intensified in December as the producer price index (PPI) for 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% from November, while the PPI for inputs to new nonresidential construction jumped 1.7%, the Bureau of Labor Statistics (BLS) reported today. AGC posted tables showing PPIs relevant to construction. Since hitting a low in April, the “bid price” PPI has edged up only 0.1%, while the PPI for new-construction inputs has increased 8.1%. Prices for numerous inputs have been volatile in recent months. The PPI for diesel fuel soared 12% in December but was nevertheless down 2.8% year-over-year (y/y) since December 2019. The PPI for copper and brass mill shapes climbed 6.8% for the month and 20% y/y; lumber and plywood, 6.7% and 36%, respectively. There were also major variations within broad categories. The PPI for steel mill products rose 3.7% for the month and 2.0% y/y. But the PPI for prefabricated metal buildings climbed 2.6% and 12%, respectively, while the PPI for sheet metal products was unchanged for the month and declined 0.3% y/y.

Two other recent reports confirm increases in materials costs. On Wednesday, the Federal Reserve released the latest “Beige Book,” a compilation of informal soundings of business conditions in each of the 12 Fed districts, based on information collected November 21-January 4. The U.S. summary noted, “prices for construction and building materials, steel products, and shipping services were reported to have risen further.” AGC posted construction-related excerpts from each district. On January 6, the Institute for Supply Management issued the December “Services ISM Report On Business,” a monthly survey of purchasing executives Items relevant to construction that were reported in short supply included construction contractors, personal protective equipment (PPE), PVC products, and steel products. All of these were reported up in price, as were copper products, diesel fuel, oriented strand board, and shingles.

Some of the cost increases may reflect tight supplies of construction materials due to plant closures, shortages of key workers, or transportation bottlenecks. In a favorable indicator for improving availability, the Fed reported today that its index of industrial production for construction supplies increased 1.9% from November to December, although the index declined 1.6% y/y.

Construction starts (dollars) plummeted 32% y/y from December 2019 to December 2020 and 18% for 2020 as a whole, data firm ConstructConnect reported on Wednesday. Nonresidential building starts plunged 51% y/y and 32% for the year (commercial, -50% and -46%, respectively; industrial [manufacturing], -75% and -47%; and institutional, -39% and -15%). Engineering (civil) starts sank 39% y/y and 19%. Residential starts fell 9.5% y/y and 2.1% (multifamily, -62% and -28%; single-family, 20% and 11%).

The Dodge Momentum Index “jumped 9.2%” in December from the revised November reading, Dodge Data & Analytics reported on January 8. The index “is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The commercial component of the Momentum Index rose 14%, while the institutional component rose by 0.3%. The gain in the commercial component…was mostly the result of a sizeable increase in warehouse planning. The warehouse sector has been one of the few areas of construction that has flourished during the pandemic thanks to increased demand for online shopping. For the full year [the i]ndex lost 4.8% from 2019. The institutional component of the Momentum Index dropped 13.5%, while the commercial component increased 0.8%.”

There were 236,000 job openings in construction, not seasonally adjusted, at the end of November, up 9.8% from November 2019, BLS reported on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. November was the first month since February in which openings increased y/y. Hires in November totaled 304,000, down 5.6% y/y. Layoffs and discharges declined 14% y/y to 234,000. Quits shrank by 5.5% y/y to 121,000. JOLTS data combines nonresidential construction with residential; the latter most likely accounts for a disproportionately large share of hires and openings.

In the Census Bureau’s January 4-10 Small Business Pulse Survey, released on Thursday, only 11% of construction firms reported their business had returned to its “normal level of operations relative to one year ago”. That percentage was unchanged from the previous two weeks but lower than the 12-17% from August to mid-December. Conversely, in the two latest survey weeks, 36% expect returning to year-ago levels will take more than six months, the highest number since late November.

United Van Lines’ 44th Annual National Migration Study, released on January 4, provides some hints as to how the pandemic affected state-to-state migration in 2020, a driver of demand for various types construction and for state and local revenue. “Idaho was the state with the highest percentage of inbound migration (70%) among states experiencing more than 250 moves with United Van Lines for the second consecutive year. Topping the list of outbound locations was New Jersey (70% outbound), which has held the spot for the past three years. Among the top inbound states were South Carolina (64%), Oregon (63%), South Dakota (62%) and Arizona (62%), while New York (67%), Illinois (67%), Connecticut (63%) and California (59%)” were among the top outbound states.

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.