AGC

Commercial Construction Spending Dips First Time in Nearly a Year

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

According to the Associated Builders and Contractors, national nonresidential construction spending shrunk for the first time in 11 months. The slight decrease comes on the heels of an 11-month record of commercial and industrial construction spending increases, propelled by robust manufacturing construction.

ABC Chief Economist Anirban Basu says although overall nonresidential construction spending is up more than 17 percent since August 2022, manufacturing-specific construction activity accounted for most of that increase.

“Excluding the manufacturing segment, nonresidential construction spending is barely outpacing inflation, up just 6 percent over the past year,” Basu said.

Spending in the manufacturing sector, according to Construction Dive, edged up 1 percent in May and remains up 76 percent year over year. Meanwhile data center construction – a subset of office construction – also inched up 1 percent in May and remains up 6.7 percent year over year.

Yet despite these increases in private-sector, nonresidential construction spending, most other categories are lagging behind, says Ken Simonson, Associated General Contractors of America chief economist.

“Our analysis of federal industry data indicates that public construction spending posted mixed results, as the largest infrastructure categories declined for the month and education spending flattened,” said Simonson. “Highway and street construction dipped 0.4 percent from April and public spending on transportation facilities – such as airports, transit and passenger rail – decreased 0.8 percent.”

Commercial construction spending including warehouse and retail builds also dipped 1.8 percent in May.

“The data for May show there has been no letup in the feverish pace of manufacturing construction but a very mixed picture for other project types,” Simonson said.

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Warehouse Builds Nearly Offset Retail, But Construction Spending Still Down, AGC Says

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

For the first time in seven months, total construction spending decreased during September.

According to the Associated General Contractors of America, both nonresidential and residential construction slipped. AGC officials are urging the U.S. House of Representatives to complete work on the bipartisan infrastructure bill that the Senate passed months ago.

“Spending on projects has been slowed by shortages of workers and materials, as well as extended or uncertain delivery times,” said Ken Simonson, AGC of America chief economist. “And the extreme rise in materials costs is likely to mean some infrastructure projects will no longer be affordable without additional funding.”

Construction spending in September totaled $1.57 trillion (seasonally adjusted) nationwide, Simonson said, down 0.5 percent from August. Year-to-date spending in the first nine months of 2021 combined for an increase of 7.1 percent in total, compared to January through September 2020.

While both nonresidential and residential construction has experienced a decline in August and September of this year, the two categories have diverged as compared to 2020 levels. Nonresidential construction in both public and private sectors combined fell 0.6 percent in September and 5.8 percent year-to-date. Residential construction spending slipped 0.4 percent for September but was 24.5 percent higher year-to-date.

“Most infrastructure categories posted significant year-to-date declines,” said Simonton. “The largest public infrastructure segment – highway and street construction – was 1.3 percent lower than in January through September 2020. Spending on public transportation slumped 6.8 percent year-to-date.” The sole exception, he added, was investment in sewage and waste disposal structures; spending in this category rose 4.3 percent in the first nine months of 2021. That said, public water supply projects dipped 0.9 percent while conservation and development construction plummeted 19.5 percent.

Combined private and public spending on nonresidential electric power and oil and gas projects declined 2.5 percent over the same period in 2021. Education-related construction decreased 10.1 percent. Commercial construction – including warehouse, retail and farm structures – declined 1.7 percent. “A 13.2 percent plunge in retail construction from January through September of this year outweighed a 12 percent increase in construction of warehouse structures,” he said.

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PPI Jumps 24% in 12 Months, Preventing Contractors from Passing Along Cost Increases

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Increases in prices for wood, metals, plastics and gypsum continue to narrow the margin between what contractors pay to acquire raw materials and what they’re able to charge the project owner.

Ken Simonson, chief economist for the Associated General Contractors of America, said the construction industry Producer Price Index – which measures the average change over time in the selling prices received by domestic producers for their output – has climbed 24.3 percent over the past 12 months, increasing 4.3 percent in May 2021 alone. The 12-month climb, he says, is nearly double that of any previous year in history.

“This increase far outstrips contractors’ ability to charge more for projects,” said Simonson. “This gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”

Meanwhile, the PPI for new nonresidential construction – a measure of what contractors say they’d charge to build five types of commercial structures – increased only 2.8 percent over the past 12 months. AGC’s recent analysis included narrative from contractors across the nation who said they’d held their profit expectations down to compete for a limited number of new projects.

According to the AGC, the PPI for lumber and plywood more than doubled, increasing 111 percent from May 2020 to May 2021. The index for steel mill products increased 75.6 percent over the same period. The copper and brass mill shapes PPI rose 60.4 percent since May 2020, and the aluminum PPI rose 28.6 percent. The PPI for plastic construction products increased 17.5 percent, while the index for gypsum products such as wallboard climbed 14.1 percent.

Fuel costs, Simonson says, along with surcharges on freight deliveries, have also jumped.

AGC officials including CEO Stephen Sandherr, are urging the Biden administration to end tariffs and quotas on steel, aluminum and lumber as the first step toward easing pressure on construction costs and supply chain bottlenecks.

“Ending tariffs on Canadian lumber, along with tariffs and quotas on steel and aluminum from numerous allied countries, is good policy,” Sandherr said.

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Construction employment falls in May; hourly earnings premium, hires decline in April; openings soar

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Construction employment, seasonally adjusted, totaled 7,423,000 in May, a drop of 20,000 from April and the third decline in the past four months, according to AGC’s analysis [ https://AGCA.informz.net/AGCA/data/images/Employment table_May_PDF.pdf ] of Bureau of Labor Statistics (BLS) data posted [ https://www.bls.gov/news.release/empsit.nr0.htm ] on Friday The May total was 225,000 (-2.9%) below the pre-pandemic peak in February 2020. The gap widened between residential and nonresidential employment gains. Residential construction employment, comprising residential building and residential specialty trade contractors, edged up by 1,900 in May, putting the total 35,000 (1.2%) higher than in February 2020. Nonresidential construction employment—building, specialty trades, and heavy and civil engineering construction—shrank by 21,800 in May and was 260,000 (-5.6%) below the February 2020 level. A total of 642,000 former construction workers were unemployed in May, a sharp decline from May 2020 but the second-highest May level since 2014. The industry’s unemployment rate in May was 6.7%, compared to 12.7% in May 2020.
 
The BLS report also covers average hourly earnings by industry, with a one-month lag for subsectors. For total construction, hourly earnings in April averaged $32.59, 8.0% more than the average for the nonfarm private sector. However, over the past two years this premium shrank by 2.2 percentage points from 10.2% in April 2019, implying that the financial attractiveness of construction may be diminishing as other sectors that are expanding faster raise pay to attract more workers. The premium diminished the most for employees of heavy and civil engineering construction firms (-4.5 points, from 16.0% above the private-sector average in April 2019 to 11.5% in April 2021), followed by residential building firms (-2.7 points, from an 8.8% premium to 6.0%), specialty trade contractors (-1.0 points, from a 6.1% premium to 5.0%), and nonresidential building firms (-0.9 points, from a 25.4% premium to 24.5%).
 
There were 357,000 job openings in construction, seasonally adjusted, at the end of April, BLS reported [ https://www.bls.gov/jlt/ ] on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. Hires in April totaled 335,000 or 4.5% of the employment total for the month. Apart from the pandemic-depressed 3.1% rate in 2020, the rate was the lowest rate of hires for April in the 21-year history of the series, while the job openings rate (4.6% of filled and unfilled jobs) was the second-highest total for any month since the series began in December 2000. That is consistent with reports from many contractors that they are having a very hard time hiring workers. (JOLTS data combines nonresidential construction with residential, and it is not possible to tell if the demand and openings are coming from both segments of the industry.)
 
The Dodge Momentum Index jumped 9.1% in May from the revised April reading, Dodge Data & Analytics reported [ https://www.construction.com/news/Dodge-Momentum-Index-Increases-In-April-2021 ] on Monday. 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….May’s jump was the result of a large increase in commercial planning activity, which posted its strongest month-over-month increase since October 2017. Institutional planning, meanwhile, fell by less than one percentage point. Commercial planning had been in a holding pattern over the last four months, but broke out in May due to several sizable data center, office, and warehouse projects that peaked in a 13-year high for the commercial component of the Momentum Index. While essentially flat in May, institutional planning remains at levels not seen since 2009. On a year-over-year basis, both commercial and institutional planning were up from May 2020 (38% and 47% respectively). The Momentum Index overall was also 41% higher than in May 2020….The rising trend in planning activity is a good sign that the economic recovery is starting to spread into the construction sector. However, these projects are unlikely to have an impact on construction starts this year. Rising material prices and a continued shortage of skilled labor have led to project delays. On the upside, construction starts are shaping up for a healthy increase in 2022.”
 
Readers continue to report materials price increases, some immediate or retroactive, and supply-chain disruptions. A reader received a notice on June 5 from a structural steel supplier that “Effective with orders received after 8:00 pm EST, Friday June 4, [m]erchant products will be increased by…$70 ton.” A commercial furniture supplier notified customers on June 8, “Foam shortages persist, and foam pricing continues to rise[, making] it necessary to adjust pricing on select pieces[, ]effective June 7.” A Texas concrete supplier wrote to customers on June 4, “Effective August 1,…we will be increasing the price of all concrete products by $3.00 per cubic yard[, ] due to labor shortages.” Readers are invited to send information to ken.simonson@agc.org [ http://ken.simonson@agc.org ] .
Steel-industry newsletter Steel Market Update [ https://www.steelmarketupdate.com/ ] reported today, “Hot-rolled coil prices charged higher yet again even as lead times stretched into August, a typically slower time of the year….Hot-rolled coil prices have hit a new all-time high of $1,675 per ton, up $55 per ton compared to a week ago and up $1,235 per ton from August of last year. Cold-rolled coil prices were up $65 per ton week-over-week, galvanized base prices gained $20 per ton, and Galvalume prices were up $70 per ton. The increases came after June prime scrap prices settled up $60 per gross ton. Plate prices, meanwhile, were unchanged….SMU’s Price Momentum Indicators, in the meantime, continue to point toward higher prices for the next 30 days.”
 
Lumber-product prices have shown mixed trends recently. Futures contracts for lumber have declined sharply for four weeks in a row, while trade publication Random Lengths [ https://randomlengths.com ] reported further record weekly highs for oriented strand board and lumber prices.

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Construction Safety Week 2021 Emphasizes Focusing on Everyday Jobsite Safety Choices

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

More than 40 national and global construction firms comprising the Construction Industry Safety Initiative and the Incident and Injury-Free CEO Forum invite the industry to recognize Construction Safety Week 2021 from May 3-7.

With the AGC of America as a signature event sponsor, the eighth-annual safety week bears the theme, “Be Present. Be Focused. Be Safe.”

Construction Safety Week 2021 Chairman Mike McKelvy, President and CEO of Gilbane Building Company, says the board chose this year’s theme based upon what the industry and society at large experienced during 2020.

“From last March onward, construction workers across the country have had to go to jobsites every day and continue building projects – roads, bridges, hospitals and schools,” said McKelvy. “They’ve been front line when the rest of society has taken a step back. Our them for this year’s safety week is holistic. It’s about each of us getting our mind straight about what our role is and focusing intently during an uncertain time when there are more distractions than ever, and focusing on the task so we can make the best, safest choices. The choices we make are better and safer when our focus is there,” he added.

Construction industry partners are invited to visit https://www.constructionsafetyweek.com/ and download myriad resources such as jobsite banners, a safety week planning playbook, communications toolkits with social media templates and media relations tips and at-home family activities.

From now until 4pm CST on May 6, individuals working in construction are invited to upload their photo and short story about what safety means to them. A total of 10 safety week winners will be chosen for awards of $1,000 each.

“This is the one week of the year that we can all use to remind ourselves about staying safe, and to recharge our batteries to focus on safety in the year ahead,” McKelvy said.

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Building Materials Supplier, AGC Economist Attest to COVID Lumber Price Spikes

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By KERRY SMITH, Editor, St. Louis Construction News and Review Magazine

A Metro East building materials supplier with 72 locations across four states says the latest analysis by the Associated General Contractors of America is accurate: Builders and consumers are hurting from un precedented increases in the cost of lumber.

Robert Plummer, chairman and CEO of R.P. Lumber Company, Inc., says record price increases of more than 200 percent in lumber and panel products are not only choking the supply chain but also affecting commercial and residential contractors as well as consumers.

The life-long industry veteran’s observations track with AGC Chief Economist Ken Simonson’s latest analysis – released Feb. 17 – that prices for materials and services used in construction and contractors’ bid prices have diverged sharply since April 2020. A government index measuring the selling price for materials and services used in nonresidential construction increased 2.5 percent from December to January and a whopping 10.7 percent since the extreme price increases.

“Current conditions are harming contractors on existing projects and making it difficult to bid new work at a profitable level,” Simonson said, noting that the PPI for new nonresidential construction is a measure of what contractors say they would charge to erect five types of nonresidential buildings. The PPI increased only .2 percent since April. “While contractors have kept bids nearly flat until now, project owners and budget officials should anticipate the prospect that contractors will have to pass along their higher costs in upcoming bids,” he added. “Since this government data was collected more than a month ago, numerous sources indicate price increases have continued or even accelerated since then.”

Plummer attests that this is indeed the scenario. In addition to its 44-year history of serving as a building materials supplier, R.P. Lumber operates a truss plant and has retail home centers across Illinois, Missouri, Iowa and Wyoming.

“In all these years, I’ve never seen anything like this,” said Plummer. “We buy and sell a tremendous amount of lumber, drywall and roofing product – thousands of semitrailers’ worth – every year. It’s shocking where the price of lumber has gone since the (COVID) pandemic began, particularly on lumber and panels products such as OSBs (oriented strand board), ZipWalls and plywood. One year ago, we were paying somewhere in the $300 range per thousand board feet for 7/16ths (7/16-inch by 4 feet by 8 feet). Today we’re paying slightly more than $900 for the identical material.”

Even precut lumber is not immune from mills’ drastic price increases since COVID hit. Plummer says a 2×4-foot precut that cost in the $3 range in February 2020 now costs in the $6.50 to $7 range.

No doubt supply chains were impacted by the West Coast wildfires of 2020 that consumed huge forests of cedar, spruce and fir, and tariffs for product entering the U.S. from Canada has also played a role, Plummer says. But beyond these conditions, the severity of material increases continue to stymie lumberyards and contractors while hitting owners and homeowners’ bottom lines.

“This week we’ve heard of another 20 percent price increase in drywall, the second such increase this year, and it will take effect in March/April,” said Plummer. “In addition to lumber price increases, we’ve experienced three increases in the cost of metals, from steel studs to soffits, metal panels and I-beams. And we’re anticipating a second increase this year on wiring and on roofing materials. Builders will forward these increases through the pipeline. They may be protected on one job if they have locked-in pricing, but they may feel it on the next job.”

The entire industry is buying more building materials from Europe, according to Plummer. “Euro-Premium, a spruce product, is shipped into the U.S. more cheaply than we can many times buy a comparable product domestically right now,” he said. “That’s a reflection of how volatile the domestic supply chain is right now.”

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