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AGC's Data DIGest: October 14-19, 2015

Construction input PPIs dive; Census probes where workers went; M&A activity is mixed

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 producer price index (PPI) for final demand skidded 0.7% in September and 1.1% over 12 months, the Bureau of Labor Statistics (BLS) reported on Wednesday. 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 34% of total construction. The PPI for final demand construction, not seasonally adjusted, was flat in September and rose 1.8% over 12 months. The overall PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of five categories of buildings—also climbed 1.8% since September 2014. The 12-month increases ranged from 0.2% for healthcare construction to 1.8% for schools, 1.9% for warehouses and industrial buildings, and 2.4% for offices. PPIs for new, repair and maintenance work on nonresidential buildings were flat for plumbing contractors from September 2014 to September 2015 and rose 1.2% for roofing contractors, 2.9% for concrete contractors and 3.8% for electrical contractors. An expanded set of PPIs for inputs to construction—excluding capital investment, labor and imports—adds services to the previous PPI for construction industries, goods (formerly called inputs to construction industries). Goods constitute 60% of the index (including 7% for energy); services, 40% (trade services, 25%; transportation and warehousing services, 4%; other services, 10%). The overall PPI for inputs to construction slid 1.3% from August to September, as the index for energy tumbled 13%, goods less food and energy inched down 0.1%, and services fell 0.9% for the month. The PPI for all goods used in construction fell 3.9% over 12 months. Materials important to construction that had notable one- or 12-month price changes include diesel, down 11% for the month and 44% over 12 months; steel mill products, -0.8% and -15%, respectively; copper and brass mill shapes, -0.8% and -14%; aluminum mill shapes, -0.8% and -12%; lumber and plywood, -1.4% and -11%; paving mixtures and blocks, -1.0% and -5.1%; flat glass, -0.2% and 4.6%; and cement, -0.4% and 6.3%.

The Census Bureau on Friday posted an article by Hubert Janicki and Erika McEntarfer, Where Did All the Construction Workers Go? "We find that over 60% of construction workers displaced by the housing bust are employed in other industries or have left the labor market by 2013. We also find evidence of a persistent drop in hiring of younger workers into construction jobs over the last decade that is likely contributing to the current shortage of skilled workers in construction....Employed workers moving from other industries into construction fueled a large part of construction employment growth during the housing boom"—more than workers entering or returning to the labor force. These workers came predominantly from leisure, hospitality and retail; far fewer came from manufacturing, mining or transportation. "However, when the boom ended in 2006, there was no corresponding employment decline from workers moving into other industries; almost the entire employment decline is workers separating to nonemployment. [One reason for] the decline in hires among younger workers...could be unwillingness by construction companies to train relatively young workers relative to other industries in the economy. Another reason for this decline could be unwillingness to hire or work for short-duration contract jobs."

Merger and acquisition (M&A) activity in the third quarter slowed in number but increased in dollar volume from the second quarter, Headwaters MB reported Monday in its quarterly Merger & Acquisition Chronicle, citing PitchBook. Both third-quarter figures trailed the year-ago quarter. "Although [M&A] activity in the construction industry has been dominated by strategic acquirers as of late, investment from private equity groups has increased and returned to pre-recession levels." The report also presents data drawn from 73 recent construction-related transactions, links to 89 more, and other data and news.

The value of nonresidential construction starts, not seasonally adjusted, fell 42% from September 2014 to September 2015 and 5.8% year-to-date for the first nine months of each year, CMD (formerly Reed Construction Data) reported on Thursday, based on data it collected. Institutional building starts fell 5.2% year-to-date; commercial building starts, -5.2%; and heavy engineering starts, -14%. In contrast, the small and volatile industrial building starts category jumped 50%.

Reports from the 12 Federal Reserve districts "point to continued modest expansion in economic activity" from mid-August through early October, the Fed reported on Wednesday in its latest "Beige Book," a compilation of informal soundings of business conditions in each district (which is referenced by the name of its headquarters city). "Residential construction has been mixed but generally stronger in the latest reporting period, with multifamily outpacing single-family construction. Strong multifamily construction was highlighted in the New York, Cleveland, Richmond and San Francisco districts, while Atlanta reported strong residential construction generally. However, Minneapolis and Kansas City reported declines in new home construction. Philadelphia mentioned a lack of new construction, while Dallas reported that new construction has been restrained by labor shortages; Chicago indicated little change....Commercial construction was also stronger in most districts. Boston and St. Louis noted brisk construction in the health sector, including senior care facilities, and Cleveland also indicated strong demand for senior living structures. New York, on the other hand, noted some pullback in new commercial construction, though activity remained fairly brisk....Scattered labor shortages were reported in construction (Cleveland, Chicago, San Francisco)...To the extent that more significant wage increases were observed, they were largely concentrated among highly skilled workers in information technology, health care, professional services, and some of the skilled trades."

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. Sign up at http://store.agc.org.