Vol. 17, No. 43 · December 4-8, 2017

Construction employment, earnings outpace economy in November; price-hikes proliferate

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            Nonfarm payroll employment in November increased by 228,000, seasonally adjusted, from October and by 2,071,000 (1.4%) year-over-year (y/y), the Bureau of Labor Statistics (BLS) reported today. The unemployment rate, 4.1%, matched the 17-year low reached in October. Construction employment increased by 24,000 for the month and 184,000 (2.7%) y/y to a 10-year high of 6,955,000. Average hourly earnings in construction increased 2.9% y/y to $29.17, or 9.9% higher than the average for all private-sector employees ($26.55, a rise of 2.5% y/y). The unemployment rate in construction, not seasonally adjusted, fell to 5.0% from 5.7% in November 2016, and the number of unemployed jobseekers with construction experience was 467,000, down from 517,000. (Not-seasonally-adjusted data may be affected by normal weather and holiday patterns and thus should not be compared to levels in other months.) Architectural and engineering services employment increased 3.5% y/y.

            Announcements about price increases for building materials appear to be getting more numerous. In its monthly survey of building products suppliers, a “handful of contacts indicate wallboard is at least on partial allocation,” investment research firm Thompson Research Group reported on Wednesday. Regarding materials prices, “100% of survey respondents expect at least a portion of the [15-18%] January wallboard price increase will be accepted….The flooring industry has [a] price increase of 5%-6%, effective late November/early December on hard and soft surface products. This is the third price increase the flooring industry has announced for calendar 2017….The insulation industry has announced three price increases in 2017 (January, late June/early July, mid-September). Another high single-digit to low double-digit price increase has been announced for January 2018….On the heels of four price increase attempts in 2017, the steel stud industry has a 15% price [increase] out in the market for January 2018.” In the past three weeks, readers have forwarded announcements of price increases for wire mesh, effective January 1; rebar, effective immediately (December 6); “2% effective on all [steel] building orders quoted on or after December 12″ (from Nucor Building Group); and concrete prices of $8 per yard effective January 1 (from Vulcan Materials). Readers are invited to send notices to simonsonk@agc.org.

            Although Congress has not resolved differences between the House and Senate tax restructuring bills, “Hospitals, universities and nursing homes…are rushing to borrow money tax-free—while they still can,” the Wall Street Journal reported today. “Last week, borrowers issued more than $4 billion in ‘private-activity’ bonds, which allow nonprofits and some for-profit firms to raise money for development projects perceived to have a public benefit. That was triple the amount issued during the same week in 2016, according to a Municipal Markets Analytics analysis of Bloomberg data [. The] House bill would eliminate the benefit [, while] the Senate would leave the bonds untouched….Bond buyers last week rushed to purchase private-activity bonds for a railroad planned along Florida’s coast [totaling $600 million. In North Dakota,] $363 million in bonds…would help pay for a new…hospital and replace two buildings constructed about 100 years ago. Another hospital operator, Mercy Health in Cincinnati, also rushed a planned $585 million issuance to market…, said Jerome Judd, Mercy’s senior vice president of treasury and investment….The planned financing will be used for outpatient investment and refinancing existing debt, he said.” These and other issuances may add to 2018 construction spending totals.

            “The Dodge Momentum Index surged again in November, climbing 13.9%…from the revised October 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 November increase was the second month of strong gains after a four-month period of softness. November’s advance was the result of healthy gains in both the commercial and institutional sectors. From October to November, the commercial portion of the Momentum Index advanced 19.6%, while the institutional portion grew 5.5%. On a [y/y] basis, the Momentum Index is now nearly 21% higher, with the commercial portion up 24% and the institutional side up 17%. The turnaround in October and November suggest that building activity should continue to expand in 2018.”

            The Federal Highway Administration (FHWA) revised its quarterly National Highway Construction Cost Index (NHCCI 2.0) and updated it through March on November 14. The index is “intended to measure the average changes in the prices of highway construction costs over time and to convert current-dollar highway construction expenditures to real-dollar expenditures. The FHWA uses data on state web-postings of winning bids submitted on highway construction contracts.” The value of the index declined 2.2% from December 2016 to March and fell 0.8% from March 2016. “NHCCI 2.0 is consistently higher than the old index. The NHCCI 2.0 grew by approximately 4.4% per year from [2003 to] 2015. In comparison, the old index grew by 0.92% per year.” The agency also compared its index with the producer price indexes (PPIs) for all commodities and for highway construction inputs. During “2003-2016, the NHCCI 2.0 grew by 3.9% annually and the PPI rose by 2.3% annually. [PPIs] of major highway construction inputs experienced much faster growth rates than the [PPI] for all commodities during the period. The PPI for paving mixtures and blocks, concrete products and fabricated structural metal grew by approximately 5.7%, 3.7%, and 2.9% per year, respectively, between 2003 and 2016. These inputs account for a large share of the total value of construction items included in the calculation of FHWA’s NHCCI 2.0.”