Input Costs Rise Faster than Bid-Price Index in June

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Starts Surge, ConstructConnect Reports

Submitted by the AGC.

Contractors’ input costs rose faster than their bid prices from May to June but bid prices rose faster over the past 12 months, according to Bureau of Labor Statistics data posted on Thursday. Specifically, the producer price index (PPI) for material and service inputs to new nonresidential construction increased 1.1% for the month and 16.8% year-over-year (y/y). The PPI for new nonresidential building construction—a measure of the price that contractors say they would bid to build a fixed set of buildings—rose 0.5% for the month and 19.8% y/y. Costs rose faster than bid prices last month for a variety of inputs in the cost index: diesel fuel, up 14% for the month and 111% y/y; prepared asphalt and tar roofing and siding products, 3.2% and 22%, respectively; concrete products, 1.7% and 14%; plastic construction products, 1.5% and 27%; insulation materials, 1.2% and 16%; and brick and structural clay tile, 1.0% and 9.3%. In contrast, the PPI for lumber and wood products slumped 15% in June and 27% y/y. PPIs for metals also slid last month: aluminum mill shapes, down 5.2% for the month but up 20% y/y; steel mill products, -1.8% and 22%, respectively, and copper and brass mill shapes, -1.6% and 0.6%. Bid prices, as measured by PPIs for new buildings, fell 0.1% for the month but climbed 30% y/y for new warehouse construction; and increased 0.2% in June and 16% y/y for both school and health care buildings; 0.8% and 24%, respectively, for industrial buildings; and 1.0% and 21% for offices. PPI increases for new, repair, and maintenance work by subcontractors amounted to 0.8% for the month and 21% y/y for concrete contractors; 15% and 18%, respectively, for roofing; 1.4% and 14% for plumbing; and 0.4% and 12% for electrical contractors. AGC posted tables of construction PPIs. Readers are invited to send information about costs and supply issues to ken.simonson@agc.org.

The value of construction starts in June rose 3.6% y/y in current dollars (i.e., not inflation-adjusted) and increased 15% year-to-date for the first half of 2022 compared to January-June 2021, not seasonally adjusted, data firm ConstructConnect reported on Friday. Nonresidential building starts jumped 29% year-to-date, with institutional starts up 1.9%, commercial starts up 0.8%, and industrial (manufacturing) starts up 316%. Engineering (civil) starts leaped 24% year-to-date, with road/highway up 30%, water/sewage up 23%, power and other miscellaneous down 4.1%, bridges up 47%, dams/marine up 13%, and airports up 20%. Residential starts edged up 0.7% year-to-date, with single-family up 1.3% and apartments down 1.0%.

“The first year of new settlements reached from January through June of 2022 for union craft workers in the construction industry had an average increase of 3.6%” for wages, fringe benefits, and other employer payments, the Construction Labor Research Council reported on Friday in its June Settlements Report. “There has been noticeable growth in the size of increases the past year and a half. After a modest dip of 0.2% in 2020, likely due to COVID-19, there was sharper growth in 2021 and so far in 2022. That is, the 0.8% change in the size of increases from 2020 to [the second quarter of 2022] is the same amount as the growth from 2013 to 2019 (6 years). It appears that high inflation has impacted union craft pay rates more than two other recent factors—the craft labor shortage and COVID-19.” Among 14 crafts, settlements ranged from 4.3% for carpenters to 2.3% for plasterers. Among the nine Census regions, “the Northwest had the largest increase to date this year [5.7%], and that is on top of the largest increase percentage in 2021,” 4.0%. The smallest increase so far in 2022 was 2.6% in the West North Central region.

The Dodge Momentum Index in June reached a 14-year high, up slightly from an upwardly revised May reading and up 9% y/y, Dodge Construction Network reported on July 11. The index “is a monthly measure of the initial report for nonresidential building projects in planning, [which has been] shown to lead construction spending for nonresidential buildings by a full year. In June, the commercial component of the Momentum Index rose 4% [and 11% y/y], while the institutional component fell 6%” but rose 5% y/y. “Commercial planning in June was led by an increase in warehouse projects, while most other commercial buildings were flat. For institutional planning, a decrease in education projects in June dragged the sector lower, although healthcare increased.”

Economic activity expanded at a modest pace, on balance, since mid-May; however, several districts reported growing signs of a slowdown in demand, and contacts in five districts noted concerns over an increased risk of a recession,” the Federal Reserve reported on Wednesday in the latest “Beige Book” summary of informal soundings of businesses by district. Nine of the 12 districts “noted moderation in prices for construction inputs such as lumber and steel.” The district headquartered in San Francisco reported, “Contacts noted that commercial real estate permits and construction slowed down somewhat.” The Dallas Fed reported, “a few [staffing-firm] contacts cited some slowing in demand, particularly for construction workers.” The Kansas City Fed reported, “Demand for multifamily housing construction remained elevated. However, financing conditions for new projects tightened recently, leading to fewer projects being initiated in recent weeks. Still, backlogs for multifamily housing development projects remain large by historical standards.” The Minneapolis Fed reported, “Commercial construction was flat since the last report. Contacts said overall demand was still healthy, but persistently high material costs, supply chain difficulties, and rising borrowing costs were having an increasingly negative impact. New projects and total active projects over the most recent six-week period (ending mid-June) were lower,” y/y. Readers are invited to report project cancellations and postponements to ken.simonson@agc.org.

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