Spending is flat in May but up from 2016; two-thirds of metros add jobs; costs are mixed

            Construction spending totaled $1.230 trillion at a seasonally adjusted annual rate in May, nearly the same as in April (although that figure was revised up by $11 billion or 0.9%), the Census Bureau reported on Monday. Spending has varied little in the first five months of 2017, but the rate in all five months exceeded the previous high set in 2006 (without adjusting for inflation). The May rate was 4.5% higher than in May 2016 and the year-to-date (YTD) total for the first five months combined was up 6.1% from the same months of 2016. Private residential spending in May decreased 0.6% for the month but jumped 12% YTD. New multifamily construction slid 3.3% for the month but climbed 6.2% YTD; new single-family construction slipped 0.3% in May but rose 7.3% YTD; and residential improvements—a volatile series that Census often revises substantially in subsequent months—soared 23% YTD. Private nonresidential spending declined 0.7% from April but increased 5.3% YTD. By subsegment, in descending order of May size, power (electric power plus oil and gas pipelines and field structures) rose 3.4% YTD; commercial (retail, warehouse and farm) added 15%; manufacturing skidded 7.8%; office gained 17%; and health care fell 2.3%. Public construction rose 2.1% for the month but declined 3.5% YTD. Of the three largest public components, highway and street construction fell 1.3% YTD; educational construction added 3.3%; and transportation (transit, passenger rail, ports and airports) slipped 0.2%.  As usual with its May release, Census revised monthly and annual totals for the two prior years.

            Construction employment, not seasonally adjusted, rose from May 2016 to May 2017 in 245 (68%) of the 358 metro areas (including divisions of larger metros) for which BLS provides construction employment data, fell in 59 (16%) and was stagnant in 54, according to an AGC release and map on June 28. (BLS combines mining and logging with construction in most metros.) The largest gains again occurred in Riverside-San Bernardino-Ontario, Calif. (16,500 construction jobs, 18%), and Tampa-St. Petersburg-Clearwater (9,100 construction jobs, 13%), followed by Atlanta-Sandy Springs-Roswell (7.900 construction jobs, 7%) and Las Vegas-Henderson-Paradise (8,500 construction jobs, 16%). The largest percentage gains again occurred in Lake Charles, La. (24%, 4,500 construction jobs); Lewiston, Idaho-Wash. (23%, 300 construction jobs); Detroit-Dearborn-Livonia (19%, 4,100 construction jobs); and Riverside-San Bernardino-Ontario. The largest job losses again were in Houston-The Woodlands-Sugar Land (-5,300 construction jobs, -2%), followed by the Middlesex-Monmouth-Ocean, N.J. division (-3,400 combined jobs, -9%) and Pittsburgh (-2,900 construction jobs, -5%). The largest percentage losses occurred in Danville, Ill. (-17%, -100 combined jobs), followed by Casper, Wyo. (-15%, -500 construction jobs) and Grand Forks, N.D.-Minn. (-15%, -600 combined jobs).

            "Seven in 10 [architecture] firms report modest or significant increases in prices for construction materials in their projects," the American Institute of Architects reported in its monthly Work-on-the-Boards release on June 23. Two in 10 report mixed price trends, and fewer than 1 in 10 state that they haven't seen a noticeable change. Of those that have seen some price pressures, a third of firms say that it is a serious problem and 45% report that it is somewhat serious. The remaining 22% report that it hasn't been that serious of a problem at their firm. Architecture firms—and their clients—have resorted to a variety of measures to deal with higher material prices. A majority of firms (63%) that report concerns with material prices have scaled back the scope or size of one or more of their projects, while others have redesigned projects (49%), or put projects on hold or dropped them entirely (27%). Over half of these firms have had to work with their clients to increase construction budgets (58%), or substitute less costly materials (54%). Only 12% of firms that report rising construction materials costs believe that current budgets are adequate to absorb higher costs for their projects." 

            Recent construction materials price movements have been mixed. Consultancy IHS Markit and the Procurement Executives Group (PEG) reported on June 28, "Construction costs rose again in June [for the eighth consecutive month.] Both the material/equipment and labor categories continue to record higher prices. The materials/equipment price index came in at 51.3 in June, its lowest level in seven months. Price increases were uneven with only six of the 12 categories tracked in the materials sub-index showing higher prices, three categories registered flat pricing, and three had falling prices. Since February, materials/equipment prices have been either flat or rising; this trend has reversed in June, with concrete and ocean freight indicators coming below 50. Although structural steel and steel pipe prices have backed off from this spring's peaks, anxiety about the pending Section 232 trade case decision continues....The current subcontractor labor index rose in June, with the index coming in at 52.0, slightly above May's figure of 51.3." On Friday, New South Construction Supply reported in its June newsletter that "Domestic rebar mills in the southeast and eastern US have not changed prices for two consecutive months and domestic mills are expected to hold the line on prices in July...Imported rebar prices for June were approximately 4% higher than in May and July orders will be 3 to 5% higher than in June. [Owens Corning and] Roxul announced a price increase of 3% [to 6% on insulation, effective in early July.] Polyethylene sheeting manufacturers have indicated they will hold prices at current levels through July. The price for [southern yellow pine] dimensional lumber and plywood has decreased over the past several weeks and is now approximately 7% lower than at in mid-May. R Max announced on May 30 that they will increase prices on July 2 between 8 and 10% on...polyisocyanurate insulation products."

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