PPI growth slows in June, employment ticks up following as openings slip at end of May

The producer price index (PPI) for final demand in June, not seasonally adjusted, increased 0.2% from May and 2.0% year-over-year (y/y) from June 2016, the Bureau of Labor Statistics (BLS) reported on Thursday. AGC posted tables and an explanation focusing on construction prices and costs. Final demand includes goods, services and five types of nonresidential buildings that BLS says make up 34% of total construction. The PPI for final demand construction, not seasonally adjusted, rose 0.2% for the month and 1.4% y/y. The PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of five categories of buildings—climbed 1.2% y/y. Increases ranged from 0.1% y/y for health care buildings to 0.7% for schools, 1.3% for industrial buildings, 1.6% for offices and 2.2% for warehouses. PPI changes for new, repair and maintenance work on nonresidential buildings ranged from -0.3% y/y for electrical contractors to 0.5% for plumbing contractors, 2.6% for roofing contractors and 3.2% for concrete contractors. The PPI for inputs to construction—excluding capital investment, labor and imports—comprises a mix of goods (59%) and services (41%). This index increased 2.5% y/y, less than in recent months, as several key inputs declined in price in June. The PPI for all goods used in construction rose 2.6% y/y, as the sub-index for energy climbed 3.8%, while the PPI for goods less food and energy rose 2.5%. The index for services climbed 2.2%. PPIs for inputs to seven types of new nonresidential structures had similar y/y increases, ranging from 2.2% for highways and streets to 3.2% for power and communications structures. PPIs for inputs to new residential structures rose 2.8% y/y for single-family housing and 2.4% for multifamily. Materials important to construction that had notable one- or 12-month price changes include copper and brass mill shapes, 0.9% in June and 18% y/y; diesel fuel, -2.0% in June but 12% y/y; steel mill products, 0.2% and 12%, respectively; aluminum mill shapes, -0.2% for the month but +10% y/y; gypsum products, 0.2% in June but 9.3% y/y; lumber and plywood, -1.1% and 5.9%, respectively; and cement, -1.0% and 5.8%, respectively.

           

Nonfarm payroll employment in June rose by 222,000, seasonally adjusted, from June and by 2,238,000 (1.6%) year-over-year (y/y), the Bureau of Labor Statistics (BLS) reported on July 7. The unemployment rate returned to the May level, 4.4%, after dipping to 4.3% in June. Construction employment increased by 16,000 for the month after stalling for three months (no change in April and May, a gain of 9,000 in June), and by 206,000 (3.1%) y/y. The June total, 6,896,000, was the largest since October 2008. Average hourly earnings in construction increased 2.5% y/y to $28.82, or 9.7% higher than the average for all private-sector employees ($26.25, also up 2.5% y/y). The unemployment rate in construction, not seasonally adjusted, was 4.5%, the lowest June rate since the series began in 2000. (Not-seasonally-adjusted employment may be affected by normal weather and holiday patterns and thus should not be compared to levels in other months.) The flat employment numbers for April-June are consistent with construction spending totals that the Census Bureau issued on July 3. Thus, the increase in employment for June may be a harbinger of higher spending figures when Census issues its June estimate on August 1.

           

There were 154,000 construction industry job openings, not seasonally adjusted, at the end of May, the lowest May total in three years, the Bureau of Labor Statistics (BLS) reported on July 11 in its monthly Job Openings and Labor Turnover Survey (JOLTS). The number of hires (480,000, not seasonally adjusted) was the largest May total since 2007. The number of layoffs and discharges (172,000, not seasonally adjusted) rose slightly to the highest May levels since 2012. These figures reinforce the employment and spending reports that suggest there was a pause in construction growth through May.

           

The value of nonresidential construction starts tumbled 16% y/y from June 2016 to June 2017 but edged up 2.4% year-to-date (YTD) for the first half of 2017 combined, compared with January-June 2016 starts, data provider ConstructConnect reported on Saturday. Nonresidential building starts (67% of the YTD total) plummeted 27% y/y and 6.1% YTD. Commercial building starts fell 5.6% YTD; institutional building starts slipped 0.9%; and the small industrial building starts segment plunged 29%. Heavy engineering (civil) starts (35% of the total) jumped 16% y/y and 25% YTD.

           

"Economic activity expanded across all 12 Federal Reserve districts in June, with the pace of growth ranging from slight to moderate," the Fed reported on July 12 in the latest "Beige Book" (named for the color of its cover), a summary of informal soundings of businesses in each district. Districts are identified by the headquarters cities. "Residential and nonresidential construction activity was flat to expanding in most districts....Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors....Several districts reported higher construction materials costs. [In the Philadelphia district] demand softened for autos, new home construction and nonresidential construction. [In the Richmond district] construction and real estate markets continued to improve modestly. [In the Atlanta district] nonresidential construction increased; however, multifamily construction showed signs of slowing. [In the Chicago district] construction and real estate activity increased modestly. [In the Minneapolis district] professional services, commercial construction, manufacturing, energy and mining saw growth, while employment was held back by tight labor availability. [In the Kansas City district] professional services, commercial construction, manufacturing, energy and mining saw growth, while employment was held back by tight labor availability.

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