Lead Times Rise Again

Input PPIs Soar in Year Ending in July; Steel Prices, Lead Times Rise Again, While Lumber Plunges

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Submitted by the AGC

Materials costs continued to outstrip bid prices in the 12 months ending in July despite a recent drop in lumber and copper prices. The producer price index (PPI) for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of buildings—increased 1.7% from June and 4.4% year-over-year (y/y) since July 2020, while the PPI for material and service inputs to construction industries climbed 0.9% and 25.6%, respectively, the Bureau of Labor Statistics (BLS) reported on Thursday. Numerous inputs rose at double- and even triple-digit y/y percentage rates. The PPI for steel mill products soared 11% for the month and 109% y/y; diesel fuel, 4.0% and 82%, respectively; lumber and plywood, -16% in July but up 57% y/y; copper and brass mill shapes, -1.4% and 49%, respectively; aluminum mill shapes, 1.5% and 33%; plastic construction products, 4.5% and 27%; gypsum products, 2.6% and 22%; truck transportation of freight, 0.6% and 14%; insulation materials, -0.1% and 12%; and asphalt felt and coatings, 1.1% and 10%. Bid prices, as measured by PPIs for new buildings and subcontractors, have risen at diverse rates. PPIs rose 6.5% y/y for new warehouse building construction, 5.9% for offices, 3.9% for industrial buildings, 3.3% for schools, and 3.2% for health care buildings. PPI increases for new, repair, and maintenance work ranged from 6.2% for roofing contractors to 5.4% for concrete and 3.5% each for electrical and plumbing contractors. AGC posted tables and graphs of construction PPIs.

Numerous price and lead-time increases for steel products have occurred since BLS collected prices for the PPIs around July 11. Nucor Tubular Products announced on Tuesday that it would immediately “increase pricing on all new orders for HSS, pipe, mechanical and piling products” by $125 per ton. Steel Dynamics Sales North America announced on Wednesday that it was immediately raising prices on “selected merchant products” by $20/ton, following a July 30 increase of $50 on structural merchants. On Wednesday a reader forwarded this from a steel deck and joist supplier: “As of today [joists] are delivering September 2022.…We can deliver deck first quarter 2022 as of this week. We are anticipating joist and deck deliveries to be out to 2023 by October of this year.” Readers are invited to send cost and supply-chain information to AGC’s chief economist at ken.simonson@agc.org.

Lumber futures have continued the plunge that began in early May, closing on Thursday at $500 per 1000 board feet, down 34% y/y and down 71% from the peak on May 7. A slowdown in home building and renovation has cut into demand, while sawmills have increased production. However, “Over the past three weeks we’ve seen renewed interest,” Kyle Little, chief operating officer at wholesale distributor Sherwood Lumber told CNBC on Thursday. “Our renewed interest is now turning into actual orders and people placing business here for the second half of this year, most notably in the commercial segment and into the multifamily segment.”

There were 10.1 million job openings, seasonally adjusted, including 339,000 in construction, at the end of June, the Bureau of Labor Statistics (BLS) reported on Monday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. Both numbers were the highest in the 21-year history of the series. Construction openings increased 101,000 (42%) y/y. Hires totaled 358,000, a decline of 163,000 (-31%) y/y from June 2020. Layoffs and discharges totaled 184,000, down 7,000 (-3.7%) y/y. Quits totaled 171,000, an increase of 32,000 (23%) y/y. Together, the record-high openings and decline in layoffs suggest the drop in hiring reflects the difficulty contractors are experiencing in filling positions, rather a decreased demand for workers. AGC will report more about these trends based on the 2021 AGC/Autodesk Workforce Survey. Contractor readers are invited to take the survey, which closes tonight.

The rapidly spreading delta variant of covid-19 and accompanying hospitalizations pose several threats to construction, in part due to low vaccination rates among craft workers. Construction research and training organization CPWR has posted data on covid-19 vaccination in construction, based on “a daily online survey distributed to Facebook users by the Delphi Group at Carnegie Melon University through a collaboration with Facebook.” As of July 18, 57% of respondents who list construction and extraction occupations reported being vaccinated, compared to 82% of all other occupations. Conversely, 39% of construction and extraction workers reported hesitancy about getting vaccinated, compared to 16% of all other occupations. These disparities suggest that construction firms may have more difficulty than other industries in fielding a full, healthy workforce and in attracting new workers. This difficulty likely will be exacerbated as governments and private owners increasingly impose vaccination and testing mandates for anyone on their premises. In addition, owners may put projects on hold as businesses and individuals scale back or defer reopening, travel, and other activity. And production of materials and deliveries may slow further if more workers become ill or choose to avoid jobsites that require close contact.

At the end of the second quarter (Q2) of 2021, consultancy Lodging Econometrics (LE) reported on July 26, “the total U.S. [hotel] construction pipeline stands at 4,787 projects/598,111 rooms, down 14% [y/y] by projects from Q2 2020’s 5,582 projects/687,801 rooms. This decline in pipeline totals…is largely a result of projects that were delayed in the under construction phase of the pipeline as a result of covid, now having exited the pipeline and opened. [LE is forecasting] a 2.0% increase in new supply for 2021. 1,008 projects/113,871 rooms are expected to open in 2022, representing a 2.0% increase in new supply for 2022. [For 2023] LE is expecting 997 projects/115,271 rooms to open. This is again a 2.0% increase in new supply.”

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