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AGC's Data DIGest: October 9-18, 2017

Construction input costs outpace new building PPI; job openings set August record

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 in September, not seasonally adjusted, increased 0.4% from August and 2.6% year-over-year (y/y) from September 2016, the Bureau of Labor Statistics (BLS) reported on Thursday. 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, rose 0.1% for the month and 3.4% y/y. The 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—climbed 3.5% y/y. Increases ranged from 2.7% y/y for health care buildings to 3.2% for office buildings, 3.8% for schools, 4.1% for warehouses and 4.5% for industrial buildings. PPI increases for new, repair and maintenance work on nonresidential buildings ranged from 2.7% y/y for roofing contractors to 3.3% for plumbing contractors, 3.4% for electrical contractors and 3.9% for concrete contractors. The PPI for inputs to construction—excluding capital investment, labor and imports—comprises a mix of goods (59%) and services (41%). This index increased 3.8% y/y, which slightly exceeded the 3.4% PPI increase for new nonresidential building construction, implying a cost squeeze for contractors. The PPI for all goods used in construction (including items consumed by contractors, such as diesel fuel) rose 4.5% y/y, as the sub-index for energy climbed 21%, while the PPI for goods less food and energy rose 2.7%. The index for services increased 3.0%. PPIs for inputs to seven types of new nonresidential structures had increases ranging from 3.4% for educational and vocational structures to 5.8% for power and communications structures. PPIs for inputs to new residential structures rose 3.8% y/y for single-family housing and 3.6% for multifamily. Materials important to construction that had notable one- or 12-month price changes include diesel fuel, 7.5% in September and 28% y/y; copper and brass mill shapes,6.2% and 28%, respectively; aluminum mill shapes, 2.5% and 13%; gypsum products, 0.1% and 8.0%; steel mill products, 0.1 and 7.8%; and lumber and plywood, -0.2% and 6.8%. BLS noted, "Hurricanes Harvey and Irma had virtually no impact on data collection efforts or survey response rates" but did not comment on whether any prices were affected.

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.

Job openings in construction totaled 247,000, not seasonally adjusted, at the end of August, BLS reported on October 11. Openings rose for the seventh year in a row to the highest August total in the 17-year history of the series. The industry hired 391,000 employees, the largest August total in nine years, but the record end-of-month openings suggests contractors would have hired even more workers if they were available. BLS had reported on October 4 that the number of unemployed jobseekers in August and September was the smallest for those months since 2000. These results are consistent with AGC's 2017 Workforce Survey, released on August 29, in which 70% of the 1608 respondents reported difficulty filling hourly craft positions.

The value of U.S. nonresidential construction starts leaped 43% from September 2016 to September 2017, the data-tracking firm ConstructConnect reported on October 12. The firm noted, "The big improvement in the latest period was thanks to go-aheads for three mega projects combining for a total of $17 billion....an Exxon Mobil petrochemical plant in Texas ($10 billion...); the new Delta Airlines Terminal at LaGuardia Airport in New York ($4 billion...); and the Atlantic Sunrise natural gas pipeline in Pennsylvania" ($3 billion). The cumulative value of starts from January through September increased 31.5% from the same months of 2016. In descending order of 2017 size, heavy engineering starts jumped 18%; commercial starts edged up 2.1%; institutional starts fell 14%; and the small industrial (manufacturing) category soared 542%. ConstructConnect and Dodge Data & Analytics report the full value of a project in the month it starts, information useful for knowing how much new activity is beginning. In contrast, the Census Bureau reports "value put in place," expenditures incurred each month a project is under construction, which contributes to estimates of gross domestic product and other "coincident" measures of activity.

The Architecture Billings Index score declined in September to 49.1, seasonally adjusted, down from a score of 53.7 in August, the American Institute of Architects (AIA) reported today. The index 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 indicates a decline in billings. AIA says the index "provides an approximately 9-to-12 month glimpse into the future of nonresidential construction spending activity." The scores for the four practice specialties (based on three-month moving averages) were all above 50: commercial/industrial, 54.0, down from 55.2 in August; mixed practice, 52.2, up from 50.6; institutional, 51.0, up from 50.4; and residential (mainly multifamily), 51.0, down from 52.3.

Housing starts in September decreased 4.7% at a seasonally adjusted annual rate from the August rate, but were 6.1% higher than in September 2016. Year-to-date starts for the first nine months of 2017 combined rose 3.1% from the same months of 2016. Single-family starts slid 4.6% for the month but increased 5.9% y/y and 9.1% year-to-date. Multifamily starts (in buildings with five or more units) fell 6.2% for the month and 9.1% year-to-date, though they increased 7.9% y/y. Building permits, a fairly reliable indicator of near-term starts, decreased by 4.5% for the month and 4.3% y/y but rose 5.0% year-to-date. Single-family permits increased 2.4% for the month, 9.3% y/y and 9.7% year-to-date. Multifamily permits plunged 17% for the month, 25% y/y and 3.6% year-to-date. In September, Census posted a fact sheet about the impact of Hurricanes Harvey and Irma on permit authorizations; the sheet stated that September estimates for affected areas will be released on October 26.

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.