Materials Costs, Bid Prices Accelerate in January; Dodge Starts Rise for the Month and Year-Over-Year

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Submitted by the AGC

Construction input costs and bid prices both accelerated in January, according to Bureau of Labor Statistics (BLS) data posted on Tuesday. The producer price index (PPI) for material and service inputs to new nonresidential construction climbed 2.6% for the month (up from 0.9% in December) and 20% 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—increased 3.8% for the month and 17% y/y, the most in the series’ 12-year history. (The data are not seasonally adjusted; many producers institute price increases in early January, which may explain the outsized one-month increases. In addition, the bid-price index is based in part on data from cost-estimating firms that BLS incorporates only in January, April, July, and October. Thus, the January increase reflects three months of materials cost changes as well as the monthly change in contractors’ estimated overhead and profit margins.) Numerous input PPIs rose sharply for the month and/or year. The PPI for steel mill products soared 113% y/y despite declining 1.6% for the month (the first decrease since August 2020). The index for diesel fuel jumped 5.1% in January and 57% y/y; plastic construction products, 1.8% and 35%, respectively; aluminum mill shapes, 5.6% and 33%; copper and brass mill shapes, 4.1% and 25%; architectural coatings, 9.0% and 24%; gypsum products, 4.9% and 23%; lumber and plywood, 15% and 21%; insulation materials, 4.6% and 19%; asphalt felt and coatings, 1.1% and 18%; and truck transportation of freight, 1.3% and 18%. Bid prices, as measured by PPIs for new buildings, rose by record amounts: 6.3% for the month and 28% y/y for new warehouse construction; 4.3% and 18%, respectively, for industrial buildings; 4.1% and 17% for offices; 2.9% and 15% for health care buildings; and 2.9% and 12% for school buildings. PPI increases for new, repair, and maintenance work by subcontractors amounted to 1.8% for the month and 19% y/y for concrete contractors; 4.7% and 14%, respectively, for roofing; 1.3% and 11% for electrical; and 0.8% and 9.9% for plumbing contractors. AGC posted tables and graphs of construction PPIs. On February 9, AGC posted the February edition of its Construction Inflation Alert, an 8-page document intended to inform owners, officials, and others about recent developments affecting materials costs, supply chains, and worker wages and availability. BLS released its annual reweighting of PPI inputs on February 11. Readers are invited to email ken.simonson@agc.org to receive the BLS Excel files of the “relative importance weights” for inputs to each type of construction or to send information about prices and supply-chain issues.

Total construction starts in current dollars (i.e., not inflation-adjusted) increased 4% from December to January at a seasonally adjusted annual rate, data firm Dodge Construction Network reported on Wednesday. “Nonresidential building starts increased 4% and nonbuilding starts rose 18%. Residential starts fell 1%. Compared to one year ago, total construction was 8% higher in January 2022 than in January 2021. Nonresidential building starts were up 14%, nonbuilding starts rose 12%, and residential starts gained 2%. For the 12 months ending January 2022, total construction starts were 13% above the 12 months ending January 2021.” Nonresidential building starts were 14% higher, with gains of 11% for commercial starts, 8% for institutional starts, and 82% for manufacturing starts. “For the 12 months ending January 2022, residential starts improved 19% from the 12 months ending January 2021. Single-family starts were 2% lower, while multifamily starts were 26% stronger.” Nonbuilding starts were up 3%, with environmental public works up 22%, utility/gas plants up 4%, highway and bridge starts down 1%, and miscellaneous nonbuilding starts down 16%.

Housing starts (units) slid 4.1% at a seasonally adjusted annual rate from December to January but edged up 0.8% y/y from the January 2021 level, the Census Bureau reported on Thursday. Single-family starts declined 5.6% for the month and 2.4% y/y. Multifamily (five or more units) starts slipped 2.1% for the month, but increased 8.7% y/y. Month-to-month and y/y comparisons of starts in winter months can be significantly affected by unusually mild or harsh weather in the months being compared. Residential permits increased 0.7% from December and 0.8% y/y. Single-family permits increased 6.8% for the month but decreased 5.0% y/y. Multifamily permits slumped 8.8% for the month but rose 12% y/y. The number of authorized multifamily units that have not started—an indicator of potential near-term starts—soared 44% y/y. Census announced that “the monthly Building Permits Survey design has changed from a representative sample to a cut‐off sample. This change allows complete local and county data on new housing units authorized by permits to be published monthly.”

“Bans on cryptocurrencies overseas have led to a surge of crypto- and Bitcoin-related construction in the U.S., adding more demand in the already booming data center sector, industry sources said,” Construction Dive reported on Wednesday. “The surge in Bitcoin mining centers mirrors the overall trend in the data center industry. Around 527.6 megawatts were under construction midway through 2021, an increase of 42% [y/y, according to commercial real estate services and investment firm CBRE]. Texas leads the U.S. as a favored landing spot for these projects for its low cost of power, said [Mikey Jaillet, associate at CBRE’s data center group. Texas] is on track to deploy approximately 5,000 megawatts of cryptocurrency mining data centers by 2023, said Lee Bratcher, president of the Texas Blockchain council, in an interview with Bloomberg. That’s around five times more than the current rate, said Jaillet. Other leading crypto construction destinations include Georgia and Wyoming, said [Ryan Ferguson, vice president and project executive of mission critical at McCarthy Building Cos.], for their inexpensive power, renewable energy and access to fiber.”

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