Year-to-Date Construction Spending Diverges; Beige Book Cites Shortages

Year-to-Date Construction Spending Diverges; Beige Book Cites Shortages, Delivery Delays, Price Hikes

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Submitted by the AGC

Construction spending in April increased 0.2% from an upwardly revised March rate and 9.8% from April 2020 to a seasonally adjusted annual rate of $1.52 trillion, the Census Bureau reported on Tuesday. Because project shutdowns depressed spending in March and April 2020, it is more useful to compare year-to-date figures for January-April combined in 2020 and 2021 than April rates alone. Year-to-date, total spending increased 5.8% but there was a huge disparity between strong residential spending growth and diminishing nonresidential activity. Private residential construction spending jumped 22% year-to-date: single-family, 30%; multifamily, 19%; and owner-occupied improvements, 11%. Private nonresidential construction spending declined 7.7% year-to-date, with decreases in all 11 components. The largest private nonresidential segment (ranked by year-to-date spending)—power—slumped 8.2% (including electric power, -9.5%, and oil and gas field structures and pipelines, -5.0%), followed by commercial, -4.3% (including warehouse, 12%, and retail, -22%); manufacturing, -5.0%; and office, -3.3%. Lodging had the largest decrease, -26%. Public construction spending slipped 1.8% year-to-date. The largest public segment, public education construction, slid 2.9% (primary/secondary, 1.6%, and higher education, -14%). Highway and street construction declined 4.3%. Public transportation construction fell 1.4%. (Census includes data centers in office construction and does not break them out. Nonresidential combines renovation and new construction.)

On Wednesday, the Federal Reserve released the latest “Beige Book,” a compilation of informal soundings of business conditions in each of the 12 Fed districts, based on information collected April 6-May 25. The U.S. summary noted, “Manufacturers reported that widespread shortages of materials and labor along with delivery delays made it difficult to get products to customers. Similar challenges persisted in construction….Nonresidential construction increased at a moderate pace, on balance, even as contacts in several districts said that supply-chain disruptions pushed costs higher and, in some cases, delayed projects….It remained difficult for many firms to hire new workers, especially low-wage hourly workers, truck drivers, and skilled tradespeople….On balance, overall price pressures increased further since the last report. Selling prices increased moderately, while input costs rose more briskly. Input costs have continued to increase across the board, with many contacts noting sharp increases in construction and manufacturing raw materials prices. Increases were also noted in freight, packaging, and petrochemicals prices….Strengthening demand, however, allowed some businesses, particularly manufacturers, builders, and transportation companies, to pass through much of the cost increases to their customers. Looking forward, contacts anticipate facing cost increases and charging higher prices in coming months.”

Reports of supply-chain delays have become as numerous as notices of materials price increases. One reader reported on Tuesday, “If I order steel bar joists for a project today, I will not receive them until May of 2022. Metal deck is very hard to get because the deck manufacturers are having a hard time getting the coil from the mills.” A lumber dealer’s newsletter noted, “The trucking situation is about the worst we have ever seen, especially in the South….Due dates are becoming less reliable and trucks could be up to two weeks late….Steel availability is progressively getting worse and prices continue to escalate across different industries. Steel stud manufacturers increased prices 15% June 1 and they have announced future increases of a minimum of 10% effective July 1 and another one effective August 2. Steel roofing prices have increased 6-15% recently and we will most likely see further increases throughout the summer. Several steel roofing manufacturers have put customers on allocation. Rebar and wire mesh availability is very tight and prices are increasing on every order. Most producers of wire mesh are selling material on a price-time-of-shipment basis with lead times stretching 3-4 months. Amerimax has announced a 6-12% price increase effective June 7. Lead times on metal trims, drip edge, and trim coil range from 4-6 weeks to 4+ months.” A plumbing supply firm sent a list on Tuesday of price increases from 16 manufacturers ranging from 2% to 15%, effective that day, along with notices from nine firms ranging from 5% to 10%, effective June 2-July 16. Readers are invited to send notices of price changes and supply-chain issues to ken.simonson@agc.org.

Construction employment, not seasonally adjusted, decreased from February 2020—the pre-pandemic peak month for seasonally adjusted employment—to April 2021 in 107 (30%) of the 358 metro areas (including divisions of larger metros) for which the Bureau of Labor Statistics (BLS) posts construction employment data, increased in 217 (61%) and was unchanged in 34, according to an analysis AGC released on Wednesday. Although it is usually more meaningful to compare the current month to the same month in the previous year, April 2020 employment was depressed by widespread, pandemic-induced layoffs. (BLS reports combined totals for mining, logging, and construction in most metro areas, to avoid disclosing data about industries with few employers; AGC assumes the construction-only changes in these areas match the combined change.) The largest losses over 14 months occurred in Houston-The Woodlands-Sugar Land (-29,300 construction jobs, -12%), followed by New York City (-22,300 combined jobs, -13%); Midland, Texas (-9,800 combined jobs, -26%); Odessa, Texas (-8,000 combined jobs, -39%); and Lake Charles, La. (-7,200 combined jobs, -36%). Odessa had the steepest percentage decline, followed by Lake Charles and Midland. Indianapolis-Carmel-Anderson added the most jobs over 14 months (7,900 jobs, 15%), followed by the Chicago-Naperville-Arlington Heights division (6,300 construction jobs, 5%) and the Seattle-Bellevue-Everett division (6,200 construction jobs, 6%). Sierra Vista-Douglas, Ariz. had the highest percentage increase (44%, 1,100 combined jobs), followed by Fargo, N.D.-Minn. (34%, 2,500 combined jobs). Three areas set new lows for April and 54 set new highs, in series dating in most cases to 1990.

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