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Contractors’ bid prices increased 0.4% from September to October, while materials and services input costs held steady for the month, based on an AGC analysis of producer price indexes (PPIs) that the Bureau of Labor Statistics posted on Thursday. Compared to October 2018, 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 4.0%. Increases ranged from 2.9% year-over-year (y/y) for new office buildings to 3.2% for healthcare buildings, 4.6% for industrial and school buildings, and 5.8% for warehouses. Increases in PPIs for subcontractors’ new, repair and maintenance work on nonresidential buildings ranged from 3.6% y/y for electrical contractors to 3.8% for roofing and plumbing contractors, and 4.7% for concrete contractors. Most of these y/y increases were the smallest in more than a year. In contrast to the rise in output prices, the PPI for inputs to construction—excluding capital investment, labor and imports—decreased 0.5% y/y, a sharp deceleration from the 6.7% increase one year earlier. This index covers both goods (56%) and services (44%). The PPI for energy inputs to construction tumbled 16% y/y. The PPI for nonenergy goods inputs rose 0.5% y/y; the index for services inputs increased 1.8% y/y. Price increases turned negative for some previously fast-rising inputs such as diesel fuel (down 19% y/y, following a 27% jump a year earlier); steel mill products (-13% y/y, following a 19% gain); gypsum products (-7.1% y/y, following a 6.2% rise); and aluminum mill shapes, -5.4% y/y, following an 8.6% gain). In addition, lumber and plywood prices retreated 5.2% y/y. In contrast, the PPI for architectural coatings rose 6.6% y/y, vs. 4.3% a year earlier.
On Thursday, the Federal Highway Administration posted a second-quarter (Q2) 2019 value for its National Highway Construction Cost Index (NHCCI), along with revisions for the two previous quarters. The index rose 5.4% from Q1 and 11% from Q2 2018, a steep acceleration from the 4.0% increase between Q2 2017 and Q2 2018. The NHCCI “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[s] at an average cost index for all highway construction.” Census Bureau data show highway and street construction spending rose 15% from Q2 2018 to Q2 2019, but the 11% jump in the NHCCI suggests much of this current-dollar increase may have resulted from higher prices rather than additional units (such as lane-miles).
Construction data firm ConstructConnect reported on Thursday that the value of construction starts, not seasonally adjusted, decreased 4.8% y/y in October from October 2018. Chief Economist Alex Carrick noted, “Since large project groundbreakings can often introduce notable volatility in the monthly ‘starts’ numbers and their period-to-period percentage changes, it is informative to also study ‘smoothed’ series…On a 12-month moving average basis, October 2019’s total nonresidential starts were +6.0% versus the previous 12 months (i.e., November 2018-to-October 2019 vs. November 2017-to-October 2018). Type-of-structure subcategory starts on the same 12-month-over-prior-12-month terms in October 2019 were: commercial, -5.7%; industrial, +57.4%; institutional, +1.6%; and engineering, +9.2%....The ‘smoothed’ grand total of starts, which includes residential, was flat (+0.2%) in October. Residential activity has been -8.7% on a 12-month moving average basis, with multifamily starts reversing (-12.8%) about twice as quickly as single-family groundbreakings (-6.8%).”
“Developers and senior-housing companies have spent billions of dollars over the past five years to build facilities that provide housing, food, medical care and assistance for the elderly,” the Wall Street Journal reported on Wednesday. “But this wager on elderly care is falling short of expectations,…in part because venture capital and other companies are expected to invest about $1 billion this year in …‘aging-in-place’ technologies that are starting to enable seniors to enjoy similar living standards and access to care in their own homes….Senior-housing developers added 21,332 new units in 2018—more than double the number added in 2014, according to the National Investment Center for Seniors Housing & Care, or NIC, an industry organization. This has made senior housing one of the fastest-growing commercial real-estate sectors, ahead of office, retail, hotels, and apartments, according to Green Street Advisors, a real-estate research firm. Development is expected to accelerate because, in about one decade, boomers will start reaching their mid-80s, the typical move-in age for senior housing….Occupancy is still strong but has been ebbing and could fall further as more facilities come to market.” Census construction spending data do not separately identify senior housing, which may be spread among various categories depending on the medical component.
The total U.S. hotel “construction pipeline stood at 5,704 projects/700,496 rooms, up 6% by projects and 8% by rooms” y/y at the end of Q3, data provider Lodging Econometrics reported on November 8. “Pipeline totals continue to climb closer to the all-time high of 5,883 projects/785,547 rooms reached in [Q2] 2008 and are just 179 projects shy. In its eighth consecutive quarter of growth, projects currently under construction stand at 1,729 projects/235,278 rooms, the highest count recorded since [Q2] 2008. Projects scheduled to start construction in the next 12 months, currently 44% of all pipeline projects, was 2,479 projects/286,125 rooms, very close to the all-time high set in 2009. It’s up a whopping 16% in projects and 13% in rooms, y/y. Projects in the early planning stage stand at 1,496 projects/179,093 rooms. [But this] is the second quarter in a row where construction starts have declined, an indicator that pipelines growth may top out in late 2020/2021.”