BLS finds productivity gains in construction; full-year PPI rise is highest since 2013

 

            On Tuesday, BLS posted an article on "Measuring Productivity in Construction" in its Monthly Labor Review. "This article introduces new measures of productivity growth for four industries in construction: single-family residential construction; multifamily residential construction; highways, roads and bridges construction; and industrial construction. Our overall results show that productivity growth has been positive and somewhat strong in three of the four industries. The industry of highways and associated construction is the exception. These results contrast with previous work, which suggested that productivity growth has been negative or zero within total construction. These differences in findings are not due to simple data revisions. Our measures instead reflect an analytical advance: we examine only those industries in which the deflators exactly match the industry boundaries. Previous work generally looked at the total construction sector. Since the many new deflators now available did not exist then, these prior studies had to use the single-family housing deflator and an associated cost index to deflate production in most or all of construction."

            The producer price index (PPI) for final demand in December, not seasonally adjusted, decreased 0.3% from November but increased 2.6% year-over-year (y/y) from December 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, dipped 0.1% for the month but rose 3.0% y/y (compared to a rise of 0.5% in 2016), the largest full-year increase since 2013. 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—rose 3.1% y/y, up from a gain of 0.4% in 2016. Increases ranged from 2.6% y/y for office buildings to 2.7% for health care buildings, 3.3% for schools, 3.5% for warehouses and 4.0% for industrial buildings. PPI increases for subcontractors' new, repair and maintenance work on nonresidential buildings ranged from 1.9% y/y for roofing contractors to 2.9% for concrete contractors, 3.5% for plumbing contractors and 3.7% for electrical 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 4.2% y/y (up from 0.1% in 2016), which exceeded the 3.1% PPI increase for new nonresidential building construction, implying a cost squeeze for contractors. The PPI for inputs to construction, goods (including items consumed by contractors, such as diesel fuel) rose 5.0% y/y, the largest full-increase in six years, as the sub-index for energy soared 21%, while the PPI for goods less food and energy rose 3.3%. The index for inputs to construction, services increased 3.1% for the year. PPIs for inputs to seven types of new nonresidential structures had increases ranging from 3.8% for industrial structures to 5.8% for power and communications structures. PPIs for inputs to new residential structures rose 4.3% y/y for single-family housing and 3.7% for multifamily. Materials important to construction that had notable one- or 12-month price changes include diesel fuel, unchanged in December but up 41% for the year; lumber and plywood, down 0.6% for the month but up 11% for the year; copper and brass mill shapes, -2.4% and 9.5%, respectively; aluminum mill shapes, -1.8% and 9.4%; steel mill products, 0.4% and 7.8%; and gypsum products, 0 and 5.7%.

            Construction materials costs have already risen since these prices were collected in mid-December. On January 4 and 5, the three major producers of rebar (Nucor, Gerdau and Commercial Metals Corp., which announced on January 2 that it would acquire Gerdau's rebar business) raised prices by $40/ton. On December 5, the southern California branch of distributor L&W Supply sent customers a letter stating, "Based on...extensive manufacturer price increases we are announcing the following price increases to be effective January 2, 2018: Wallboard products (including glass mat products) will increase up to 20%. Joint compound products will increase up to 7%. Steel products will increase up to 15%. Cement board products will increase up to 10%. Aluminum plaster trims will increase up to 6%. FRP products will increase up to 5%. Insulation products will increase as follows: Glass fiber batts and rolls will increase up to 12%. Glass fiber loosefill products will increase up to 15%. Mineral fiber products will increase up to 3%." Future prices for copper, crude oil and diesel have hit multi-year highs repeatedly in recent weeks, portending increases for construction inputs. Readers are invited to send price-change letters to simonsonk@agc.org.  

            There were 210,000 job openings in construction, not seasonally adjusted, at the end of November (up from 178,000 in November 2016), BLS reported on Wednesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. This was the largest November total since the series began in 2000. The industry hired 256,000 employees in November, very close to the November total in each of the previous 10 years. The number of construction industry employees who quit rose to 119,000, the highest November total since 2007. BLS reported on January 5 that there were 554,000 unemployed jobseekers in December whose last job was in construction, the lowest December total in the 17-year history of the series. Together, these figures suggest contractors are still eager to hire more workers but are having difficulty finding ones who are qualified, and that they are hiring workers away from other construction firms. (Not-seasonally-adjusted data should not be compared to levels for other months when variations may be due to normal weather- or holiday-related patterns. BLS posts series for JOLTS that it calls seasonally adjusted, but the construction openings are identical for the two series.)

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