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ABC Reports: Construction Materials Dip for Second Consecutive Month

 

CEU2“Commodity markets were particularly frenzied in August due to a series of events in China, Brazil, Iran and other parts of the world.” —ABC Chief Economist Anirban Basu

PPI_Aug15 Prices for inputs to construction industries declined 0.1 percent in July after increasing 0.2 percent in June, according to the Aug. 14 producer price index release by the Bureau of Labor Statistics. Year-over-year prices were down 3 percent in July and have been down on an annual basis for each of the past eight months. Prices of inputs to nonresidential construction industries declined 0.3 percent on a monthly basis and are down 3.9 percent on a yearly basis.

Prices for inputs to the construction industry fell 0.9 percent in August after shedding 0.1 percent in July. Inputs to nonresidential construction behaved similarly, losing 0.8 percent for the month and 4.7 percent for the year.

On a year-over-year basis, prices were down 3.9 percent for the month and have fallen by at least 2.8 percent in each month this year. Prices have now fallen on a yearly basis in nine consecutive months, the longest such streak since March to November of 2009.

“Commodity markets were particularly frenzied in August due to a series of events in China, Brazil, Iran and other parts of the world,” said Associated Builders and Contractors Chief Economist Anirban Basu. “The result is that input prices continue to slide lower, defying predictions from earlier this year suggesting that commodity prices would stabilize and at some point head higher. Global demand remains low and there is a chance that prices could fall even lower during the months ahead.

“This is good news for most contractors, with the obvious exception being those in commodity-rich communities,” said Basu. “Already, North Dakota, Oklahoma, New Mexico and Alaska are deemed to be at risk of recession, and the ongoing slide in commodity prices will only serve to further weaken those economies and suppress overall construction activity.”

Only three key input prices rose in August. The key input prices that increased in August are:

  • Prepared asphalt, tar roofing and siding expanded 2.2 percent for the month and 2.4 percent for the year.
  • Natural gas prices expanded 2.2 percent on a monthly basis but are down 29.2 percent for the year.
  • Plumbing fixtures and fittings expanded 0.2 percent from July and are up 1.2 percent from August 2014.

The key input prices that fell or remained flat include:

  • Crude energy materials prices fell 9.5 percent in August and are down 40.5 percent from the same time last year.
  • Fabricated structural metal product prices remained unchanged for the month and are down 0.4 percent on the year.
  • Iron and steel prices fell 2.9 percent for the month and 17.6 percent for the year.
  • Prices for steel mill products fell 0.7 percent from last month and 14.1 percent from last year.
  • Nonferrous wire and cable prices are down 1.1 percent in August and 6.9 percent from the same time last year.
  • Softwood lumber prices fell 3.2 percent on a monthly basis and 7.5 percent on a yearly basis.
  • Prices for concrete products inched 0.2 percent lower in August but are up 2.6 percent from the same time last year.
  • Crude petroleum prices plummeted 20 percent in August and are down 57.3 percent from the same time last year.

To view the previous PPI report, click here.

ABC Reports: Construction Activity Increases as Backlog Edges Higher

Untitled-2Associated Builders and Contractors’ (ABC) Construction Backlog Indicator (CBI) expanded by 1 percent to 8.5 months during the 2nd quarter of 2015. Backlog declined 3 percent during the 1st quarter, which was punctuated by harsh winter weather and the lingering effects of the West Coast ports slowdown. CBI stands roughly where it did a year ago, indicative of an ongoing recovery in the nation’s nonresidential construction industry.

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“The nation’s nonresidential construction industry is now one of America’s leading engines of growth,” said ABC Chief Economist Anirban Basu. “The broader U.S. economic recovery is now in its 74th month, but remains under-diversified, led primarily by a combination of consumer spending growth as well as residential and nonresidential construction recovery. Were the overall economy in better shape, the performance of nonresidential construction would not be as closely watched. The economic recovery remains fragile despite a solid GDP growth figure for the second quarter, and must at some point negotiate an interest-rate tightening cycle. Recent stock market volatility has served to remind all stakeholders how delicate the economic recovery continues to be.

“Though CBI expanded during the second quarter, performance continues to be uneven,” Basu said.  “A surge in heavy-industrial investment in the Middle States, including in the auto sector, and technology-led growth in the West were responsible for the bulk of second-quarter momentum. Backlog actually slipped in the infrastructure category, which remains hamstrung by uncertainties lingering around the Highway Trust Fund. Backlog was not statistically significantly different in the South between the first and second quarters.

“The national outlook continues to be positive,” said Basu. “The most consistently upbeat information regarding U.S. economic performance continues to emerge from the labor market. The nation added more than 2.9 million jobs between July 2014 and July 2015, enough to help drive down office and other commercial vacancy rates in many major markets despite ongoing construction.

“Also consider the tendency for commercial construction to follow residential construction. To the extent that remains true, the recent uptick in residential starts should translate into more commercial starts going forward. All of this should set the stage for further rebounds in CBI during the quarters to come, even in the absence of a long-term policy regarding infrastructure investment in the U.S.”

For additional analysis click here.

Regional Highlights

  • The West experienced a significant expansion in backlog, rising 1.2 months following the resolution of the West Coast port slowdown, however backlog in the region remains nearly 2.5 months below its year-ago levels, the largest drop of any region.
  • Backlog in the South has essentially returned to where it was two years ago, in part because of a slowdown in energy-related investment. The implication is that the average contractor remains busy, but boom-like conditions no longer prevail in energy-intensive communities.
  • Despite this, backlog in the South continue to hold the longest average construction backlog.
  • Backlog slipped for a second consecutive quarter in the Northeast, but remains above levels registered during the second half of 2013.

 

Year-Over-Year CBI Map of Regions and Backlog Months
Second Quarter 2014 v. Second Quarter 2015Untitled-3

See Charts and Graphs

Highlights by Company Size

  • On a quarterly basis, backlog rose or remained flat across all firm sizes.
  • Average construction backlog is higher or roughly the same as year-ago levels for firms of all size categories with the exception of a half-month drop in backlog among firms generating $100 million or more in annual revenues.
  • TThe largest firms, however, continue to have the lengthiest average backlog at 10.7 months.

See Charts and Graphs

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To read more about the latest CBI, click  here

ABC Reports: Nonresidential Construction Employment Downtick No Cause for Concern

CEU2“Today’s employment numbers are consistent with the notion that the U.S. economy and the construction sector remain in recovery.”—ABC Chief Economist Anirban Basu.

Employment 9.4Nonresidential construction employment fell by 700 jobs in August after losing 5,600 jobs in July and 800 jobs in June. Despite the recent slide, nonresidential construction employment is still up 38,800 jobs for the year.

Total U.S. construction industry employment inched higher again in August, expanding by a modest 3,000 net new jobs from July, an increase of less than 0.1 percent. Residential construction and the heavy and civil engineering segment added 2,400 and 1,500 net new jobs in August, respectively.

“The recent slide in nonresidential construction employment is likely an aberration caused by seasonal adjustments,” said Anirban Basu, Associated Builders and Contractors’ chief economist. “The first estimate of August employment tends to be low across all industries, and next month’s revisions may well show job growth in nonresidential construction. It’s also true that the construction industry tends to lag the broader economy. Considering that August was the 66th consecutive month of private-sector job growth—the longest streak ever—there’s plenty of reason for optimism about the construction industry’s economic health.

“The nationwide unemployment rate fell for all the right reasons,” said Basu. “There were 1.5 million fewer unemployed persons in August than July and nearly 200,000 more employed persons. Even the employment-to-population ratio rose, if only by 0.1 percentage points. The upward trend in the construction unemployment rate also represents a positive change. A higher—though still historically low—unemployment rate is not necessarily bad news for an industry plagued by skilled labor shortages.

“We are in the mid-cycle stage of the recovery, which is frequently the lengthiest stage of the business cycle,” said Basu. “This phase is associated with solid job growth, low and/or falling unemployment, respectable GDP growth, and significant construction volume. It is also associated with rising interest rates. Today’s employment numbers are consistent with the notion that the U.S. economy and the construction sector remain in recovery.”

The construction unemployment rate added 0.6 percentage points in August and now stands at 6.1 percent. This is a sizable increase from July’s eight-year low, though it’s not necessarily a bad sign for an industry that has been plagued by labor shortages. The unemployment rate across all industries shed 0.2 percentage points, reaching a seven-year low of 5.1 percent.

Construction employment for the month and the past year breaks down as follows:

  • Nonresidential building construction employment fell by 1,600 jobs for the month but is up by 15,500 jobs or 2.2 percent since August 2014.
  • Residential building construction employment expanded by 200 jobs in August and is up by 27,000 jobs or 4 percent on a year-over-year basis.
  • Nonresidential specialty trade contractors added 900 jobs for the month and employment in that classification is up by 60,000 jobs or 2.7 percent from the same time a year ago.
  • Residential specialty trade contractors added 2,200 net new jobs in August and have added 84,000 jobs or 5 percent since August 2014.
  • The heavy and civil engineering construction segment added 1,500 jobs in August and employment is up by 32,800 positions or 3.6 percent on a year-over-year basis.

To view the previous employment report, click here.

Construction Input Prices Trend Lower in Jul

CEU2“Key input prices fell or were flat in all but one category in July and further downward pressure on input costs is likely to be reflected in next month’s report.” —ABC Chief Economist Anirban Basu.

PPI July 2015Prices for inputs to construction industries declined 0.1 percent in July after increasing 0.2 percent in June, according to the Aug. 14 producer price index release by the Bureau of Labor Statistics. Year-over-year prices were down 3 percent in July and have been down on an annual basis for each of the past eight months. Prices of inputs to nonresidential construction industries declined 0.3 percent on a monthly basis and are down 3.9 percent on a yearly basis.

“Key input prices fell or were flat in all but one category in July and it is important to note that further downward pressure on input costs is likely to be reflected in next month’s report, as well,” said Associated Builders and Contractors Chief Economist Anirban Basu.

“The state of affairs today is unprecedented,” said Basu. “Nonresidential construction spending has been recovering robustly in the U.S. in recent months—up more than 11 percent on a year-over-year basis. On top of that, the multifamily building boom continues in most major U.S. metropolitan areas.

“All things being equal, these circumstances should correspond with rising construction materials prices,” said Basu. “But as a reflection of how global the economy has become, America’s nonresidential construction recovery is taking place in the context of collapsing commodity prices. The latest round of commodity price decreases has been spawned by softening growth in China and ongoing increases in production of key inputs worldwide, including oil. However, this form of deflation should not be troubling to contractors. If anything, it will tend to boost profit margins for the average contractor, though falling commodity prices do not represent good news for construction firms heavily invested in oil and natural gas segments. These falling prices also imply slower increases in interest rates going forward, which will help extend the ongoing nonresidential construction recovery.”

Below are the key input prices for the month and the year.

  • Prices for plumbing fixtures remained flat on a monthly basis and are up 1.2 percent on a year-over-year basis.
  • Softwood lumber prices expanded 6.2 percent in July, but are 3.7 percent lower than a year ago.
  • Concrete product prices fell 0.1 percent in July, but are up 3.8 percent on a yearly basis.
  • Crude energy materials prices declined 6.2 percent in July and are down 37.8 percent on a year-over-year basis.
  • Fabricated structural metal product prices fell 0.7 percent for the month and have declined 0.4 percent on a year-over-year basis.
  • Natural gas prices declined 1.9 percent in July and are 38.4 percent lower than the same time one year ago.
  • Iron and steel prices were down 1.1 percent in July and are down 15 percent from the same time last year.
  • Prices for prepared asphalt, tar roofing, and siding fell 0.1 percent for the month and are down 0.4 percent on a year-ago basis.
  • Steel mill products prices fell 1 percent for the month and are 13.2 percent lower than one year ago.
  • Crude petroleum prices fell 12.3 percent in July and are down 48.8 percent from the same time one year ago.
  • Nonferrous wire and cable prices fell 1.3 percent on a monthly basis and are down 5.2 percent on a yearly basis.

To view the previous PPI report, click here

ABC Reports: Nonresidential Construction Spending Retains Momentum

CEU2“Today’s release represents the largest year-over-year growth during a calendar year’s first six months since the Census Bureau began tracking construction spending in 2002.” —ABC Chief Economist Anirban Basu.

Spending 8.3.15Nonresidential construction spending was unchanged on a month-over-month basis in June, but is up 11.5 percent on a year-over-year basis, according to a report released Aug. 3 by the U.S. Census Bureau. Nonresidential construction spending totaled $686.9 billion on a seasonally adjusted, annualized basis for the month and increased 9.8 percent during the year’s first half.

“Today’s release represents the largest year-over-year growth during a calendar year’s first six months since the Census Bureau began tracking construction spending in 2002 and serves as further proof of the recovery for nonresidential construction,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Despite the lack of growth on a monthly basis in June, along with the overall economy’s lukewarm growth, most contractors are markedly busier than they were a year ago. May’s nonresidential construction figure was revised upward by 2.6 percent and April’s by 1.4 percent; therefore, it is conceivable that June’s estimate will eventually be revised higher as well.

“Exactly half of the 16 nonresidential construction sectors experienced growth in June,” said Basu. “On a yearly basis, 15 of those 16 sectors have expanded. However, the one sector that failed to grow during the past year, power, happens to be the largest. Had power simply remained unchanged during hat time period—it’s down 16.5 percent largely because of the fall in oil prices—nonresidential construction spending would currently stand at its highest level ever.”

Eight of 16 nonresidential construction sectors experienced spending increases in June on a monthly basis:

  • Lodging-related construction spending was up 3.9 percent on a monthly basis and 42.2 percent on a year-over-year basis.
  • Spending in the water supply category expanded 12.2 percent from May and is up 12 percent on an annual basis.
  • Highway and street-related construction spending expanded 1.3 percent in June and is up 14.8 percent compared to the same time last year.
  • Amusement and recreation-related construction spending was up 10.2 percent on a monthly basis and is up 39.2 percent from the same time last year.
  • Communication-related construction spending fell 6.8 percent for the month, but is up 13.4 percent compared to June 2014.
  • Construction spending in the transportation category grew 2.3 percent on a monthly basis and has expanded 9.6 percent on an annual basis.
  • Sewage and waste disposal-related construction spending increased 1.6 percent for the month and has expanded 5.3 percent on a 12-month basis.
  • Public safety-related construction spending grew 2.5 percent on a monthly basis, but is down 3.1 percent on a year-over-year basis.

Spending in eight nonresidential construction subsectors fell in June on a monthly basis:

  • Education-related construction spending fell 0.2 percent for the month, but is up 2.1 percent on a year-over-year basis.
  • Power-related construction spending fell 0.9 percent for the month and has declined 16.5 percent from June 2014, the steepest decline for any nonresidential category.
  • Commercial construction spending fell 4.3 percent in June, but is up 7.6 percent on a year-over-year basis.
  • Health care-related construction spending fell 0.9 percent for the month, but is up 6.3 percent on a year-over-year basis.
  • Manufacturing-related construction spending fell 0.8 percent in June, but is up 62.1 percent compared to June 2014.
  • Office-related construction spending fell 1.1 percent in June, but is up 24.4 percent from the same time one year ago.
  • Conservation and development-related construction spending fell 5.8 percent for the month, but is up 6.5 percent on a yearly basis.
  • Religious spending fell 6.2 percent for the month, but is up 5 percent from the same time last year.

To view the previous spending report, click here.