The producer price index (PPI) for final demand in July, not seasonally adjusted, was unchanged from June and up 3.3% year-over-year (y/y) from July 2017, the Bureau of Labor Statistics reported on August 9. 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 31% of total construction. The PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of buildings—climbed 0.4% for the month and 3.3% y/y. Increases ranged from 2.6% y/y for warehouses to 3.1% for schools, 3.3% for health care buildings, 3.5% for industrial buildings and 3.8% for offices. Increases in PPIs for subcontractors' new, repair and maintenance work on nonresidential buildings ranged from 1.1% y/y for roofing contractors to 2.8% for plumbing contractors, 3.8% for electrical contractors and 4.1% for concrete contractors. The PPI for inputs to construction—excluding capital investment, labor and imports—comprises a mix of goods (56%) and services (44%). This index jumped 8.1% y/y, far outrunning the 3.3% PPI increase for inputs to new nonresidential building construction, implying a growing cost squeeze for contractors. Increases for inputs to seven nonresidential building types ranged from 5.6% for industrial structures to 9.6% for highways and streets. PPIs for inputs to new residential structures rose 7.9% y/y for single-family and 8.3% for multifamily. The PPI for services inputs to construction rose 6.4%, while the index for goods inputs (including items consumed by contractors, such as diesel fuel) climbed 9.5%. The sub-index for energy soared 35%, while the PPI for goods less food and energy rose 6.0%. Items important to construction that had major one- or 12-month price changes include diesel fuel, down 1.6% in July but up 44% y/y; aluminum mill shapes, -3.0% and 18%, respectively; lumber and plywood, -1.6% and 16%; steel mill products, 1.6% and 12%; truck transportation of freight, 0.7% and 8.2%; copper and brass mill shapes, -7.3% and 8.0%; asphalt felts and coatings, -0.3% and 6.7%; and asphalt paving mixtures and blocks, 1.5% and 6.0%. Prices do not reflect the latest tariffs on numerous imports from China and Turkey, which took effect since prices were collected in early July or have been announced for August 23. Readers are invited to send examples of price changes or project delays and cancellations due to rising prices and actual or anticipated trade measures to email@example.com.
The price decline for some goods in the latest month may be short-lived, based on the latest survey of building products manufacturers and distributors by investment research firm Thompson Research Group, which it posted on August 9. Regarding steel studs, "60% of respondents reported 'flat' pricing over the past 30-60 days; 45% of respondents believe the June price increase will be 'fully successful'; 82% at least partially successful....2018 has already seen six price increases [monthly in January-April, June and August]; distributors are telling us that they feel the worst is behind them in terms of steel price increases in 2018." Regarding wallboard, "50% of respondents reported 'up' pricing over the past 30-60 days; 50% reported 'flat.'...Average realized pricing up 2% y/y with additional mid-year pricing actions in the market." Regarding insulation, "57% of respondents reported 'up' pricing over the past 30-60 days; 43% reported 'flat.' 2018 pricing actions include...mid-to-high single-digit increase" in August following increases for various types in January, March and May. Regarding roofing, "100% of respondents reported 'up' pricing over the past 30-60 days....Commercial roofing pricing realization, however, has been less successful." Regarding flooring, "The domestic flooring industry has implemented various price increases in July and August to cover higher raw materials and transportation costs." Other contacts also cited trucking cost and availability problems.
The value of construction starts in July, not seasonally adjusted, increased 4.7% y/y from July 2017, data provider ConstructConnect reported on Wednesday, but year-to-date starts for the first seven months of 2018 combined slipped 3.7% from the same period in 2017. Nonresidential building starts increased 9.5% y/y but slumped by the same percentage year-to-date. Civil (heavy engineering) starts also climbed 9.5% y/y and 13% year-to-date. Residential starts slipped 1.4% y/y and 5.8% year-to-date.
The outlook for hotel construction remains positive. The Census Bureau reported on August 1 that private lodging construction put in place increased 9.1% year-to-date through June. Consultancy Lodging Econometrics reported on August 1, "At the end of the second quarter,...the total U.S. construction pipeline stands at 5,312 projects/634,501 rooms, up 7% from 2017's 4,973 projects/598,371 rooms. The pipeline has been growing moderately and incrementally each quarter and should continue its upward growth trend as long as the economy remains strong. Pipeline totals are still significantly below the all-time high of 5,883 projects/785,547 rooms reached in 2008. Projects scheduled to start construction in the next 12 months have seen minimal change [y/y] with 2,291 projects/266,878 rooms. Projects currently under construction are at 1,594 projects/208,509 rooms, the highest recorded since 2007. Early planning, with 1,427 projects/159,114 rooms, saw a 25% increase in projects and 18% increase in rooms" y/y. On August 2, the firm reported that the five markets with most projects under construction are New York City, Dallas, Nashville, Houston and Atlanta. "In the second quarter, Nashville has the largest number of new projects announced into the pipeline with 13 projects," followed by Los Angeles (12 projects), New York (11), Houston (11) and Dallas (10). The American Institute of Architects' "consensus" of seven forecasts, posted on July 20, predicted a median increase in hotel construction spending of 7.9% in 2018 and 3.6% in 2019.