Job Openings, Hires Rates Slip in May; Dodge Momentum Index Declines In June but Remains Elevated

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Submitted by the AGC

There were 299,000 job openings in construction, seasonally adjusted, at the end of May, the Bureau of Labor Statistics (BLS) reported on Wednesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. That was a 6.4% increase from a year earlier. However, as a share of filled and unfilled jobs, the job openings rate of 3.9% matched the year-earlier rate and fell short of the rates in April (4.5%) and March (4.3%). Hires in May totaled 311,000 or 4.2% of the employment total for the month—the lowest May hires rate in the 21-year history of the series. The declines in the hires and job openings rates are consistent with BLS’ employment report on July 2 that seasonally adjusted construction employment dropped by 22,000 in May and 7,000 in June. Layoffs and discharges totaled 157,000 or a rate of 2.1%, tying the lowest May rate in series history and suggesting that contractors are not aggressively downsizing. Contractor readers are invited to take the 2021 AGC/Autodesk Workforce Survey.

“Following six months of consecutive gains, the Dodge Momentum Index fell [5% in June] from the revised May reading,” Dodge Data & Analytics reported on Thursday. The index “is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year….The decline in June was the result of losses in both institutional planning, which fell 7%, and commercial planning, which lost 4%. Uncertain demand for some building types (such as retail and hotels), higher material prices, and continued labor shortages are weighing down new project planning. Even with June’s decline, however, the Momentum Index remains near a 13-year high and well above last year. Compared to a year earlier, both commercial and institutional planning were significantly higher than in June 2020 (39% and 46%, respectively). Overall, the Momentum Index was 41% higher….June’s retreat in planning activity is another sign that the recovery from the pandemic-led recession will be nonlinear. The current level of the Momentum Index and its underlying components, however, continue to signal that a more broad-based recovery in nonresidential construction starts will occur in 2022.”

Lumber futures prices tumbled 58% from a record close of $1686 on May 7 to $716 on June 30 before rebounding to close on Thursday at $774.60. “In contrast, prices paid by builders since late May have declined by a fraction of that impact,” National Association of Home Builders economist David Logan explained in an “Eye on Housing” article on Tuesday. “As the price declines began grabbing headlines, however, the price of lumber packages quoted to builders held at record highs. In economics jargon, prices paid by builders—or ‘street’ prices—were ‘sticky.’ This dynamic is primarily due to dealers’ inventory carrying costs and potentially large differences between the price at which inventory is bought and sold….Wholesalers tend to be ‘trigger happy’ when prices skyrocket. As the cost of their inventory is low relative to cash prices during these periods, they will quote at or near current market prices. The environment is one in which wholesalers are assured to buy low and sell high. However, wholesalers cannot predict when a bull market is going to end and buy their lumber according to how likely they believe it will last. As different buyers may have different forecasts, disparities in purchasing behavior can arise. A wholesaler that assumes lumber prices will keep rising for two months will buy more inventory than one assuming the run will last for two weeks. Retailers generally have less buying power than wholesalers have selling power. In such a scenario, the retailer (e.g., lumberyard) is said to be a ‘price taker.’ As a result, their inventory costs tend to increase in step with market prices. These higher costs are passed on to builders in order to maintain positive operating margins. Thus, lumber retailers are less likely than wholesalers to realize outsized profits when prices are rising.”

“On average, pricing [for aggregates] is up 3-6%, depending upon the market and product mix,” investment research firm Thompson Research Group (TRG) reported on Thursday. There “are additional pricing actions in the works for [the second half of 2021. For cement, a] price increase in the range of 6-9% was implemented across most markets in April. A second price increase of roughly the same magnitude is being implemented in July/August. Texas cement is on allocation, as is California. Now, even the Mississippi River region has a kink, with the Holcim cement plant only producing ~50% of capacity. This plant has been running to help make up for capacity that is currently down in the [Dallas/Fort Worth (DFW)] market (awaiting a scrubber fix, which likely won’t be completed in 2021). From DFW to Houston, Texas has remained allocation given 1) 1.5 million tons of Holcim capacity offline; 2) congested ports limiting the amount of cement entering Texas and 3) overall increased demand. While the California cement market has improved relative to 2020, availability remains tight.”

Door manufacturers also announced price hikes recently. Clopay notified its dealers on Wednesday that, effective July 9, “All residential and commercial sectional models[, ]rolling steel doors[, parts,] and heavy hardware will increase 22%. All entry doors will increase 10%.” All freight rates will increase by 6%.” TRG reported on Tuesday, “We recently obtained a pricing letter from Masonite…, which indicates pricing going up 6-12% (varies by product) and surcharges being added on Asian import products. These prices will be implemented on orders received from August 9 onward….The company continues to have customers on allocation for interior doors. Masonite noted that key suppliers in the Texas Gulf Coast region are not operating at normal capacity levels, and the shortage is exacerbated by elevated demand.” Readers are invited to send cost and supply-chain information to ken.simonson@agc.org.

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