Spending is flat in January; steel and aluminum tariffs threaten construction budgets, jobs

Construction spending totaled $1.263 trillion at a seasonally adjusted annual rate in January, virtually unchanged from the upwardly revised December rate and 3.2% higher than the January 2017 rate, the Census Bureau reported on Wednesday. Public construction jumped 1.8% for the month and 8.2% year-over-year (y/y). Of the three largest public segments, highway and street construction gained 4.4% for the month and 3.8% y/y; educational construction climbed 2.1% and 7.1%, respectively; and transportation rose 0.5% and 12%, including a 26% y/y jump in state and local airport terminal construction and a 4% increase in other public transportation (other airport, port, transit and passenger rail) construction. Private residential spending rose 0.3% in January and 4.2% y/y. New multifamily construction slipped 1.3% and 2.4%, respectively; new single-family construction gained 0.6% and 8.8%; and residential improvements fell 0.4% for the month but inched up 0.1% y/y. Private nonresidential spending slumped 1.5% in January and 1.1% y/y. Of the four largest components, power (electric power plus oil and gas pipelines and field structures) tumbled 6.2% for the month and 8.7% y/y; commercial sagged 2.7% for the month but gained 5.4% y/y (comprising retail, down 9.3% y/y; and warehouse, up 35.6%); manufacturing added 1.2% in January but declined 9.7% y/y; and office fell 1.0% and 4.9%, respectively. Comparisons between January and the previous December or January can be affected by unusual weather conditions in any of those months.

President Trump announced on Wednesday that he would impose tariffs of 25% on all imported steel and 10% on all imported aluminum. The impact of tariffs is likely to be severe for construction. "The American Iron and Steel Institute estimates that 43% of U.S. steel consumption goes to the construction industry," the Wall Street Journal reported today. "In 2005, the latest figures available, the Transportation Department estimated that highway construction uses 56 tons of steel for every million dollars in project costs." An analysis released today by Trade Partnership Worldwide, an international trade and economic consulting firm, finds, "The tariffs would increase U.S. iron and steel employment and non-ferrous metals (primarily aluminum) employment by 33,464 jobs, but cost 179,334 jobs throughout the rest of the economy, for a net loss of nearly 146,000 jobs" including more than 28,000 construction jobs. "While employment increases in sectors making steel and aluminum, it declines in every other sector of the U.S. economy. Employment effects do not take into account any potential retaliation against U.S. exports; only of the tariffs themselves."

AGC is awaiting the details of the tariff rates, duration, and geographical and product extent. However, any tariffs on aluminum and, especially, steel are likely to be damaging to construction in multiple ways. The price of both imported and domestic metals is likely to rise immediately. That will reduce or eliminate any profit for contractors who have already signed a fixed-price contract for a project but who have not yet bought metal products for the project. Bid prices will rise for future projects. That will cause public owners, which generally have fixed budgets, to reduce the number or scope of projects they put out to bid, whether schools, highways and bridges, or other infrastructure. Some private projects will be canceled as construction cost increases make them uneconomic. Steel is nearly ubiquitous in construction. For instance, highway projects use wire mesh in concrete, light steel in signs and guard rails, and steel plate and wire for cables in bridges. Buildings use large amounts of structural steel for piles and beams, rebar for reinforcing concrete, and other types for staircases, studs for interior walls, and hardware. Pipelines are essentially all steel, and other infrastructure uses a variety of steel for rails and signaling systems; airport runways, control towers and terminals; harbor wharves and seawalls; and many other uses. Aluminum is used in all types of buildings for window frames and curtain walls, siding and other architectural elements. Construction equipment and vehicles incorporate steel and aluminum. Contractors preparing bids may want to review documents on price adjustment clauses and related materials prepared by owner and contractor associations through ConsensusDocs; contact AGC Senior Counsel for Construction Law and Contracts Brian Perlberg at perlbergb@agc.org. For information on highway project price adjustment clauses, contact Brian Deery, AGC's Senior Director, Highway and Transportation Division, deeryb@agc.org.

Price increase notices continue to hit contractors' inboxes. Today, a Georgia-based reader sent a price increase announcement from the American Buildings Company South division of Nucor Buildings Group for a 7% price increase on pre-engineered metal buildings, effective on March 20. A Kentucky-based reader sent an announcement from Carolina Concrete of a $10 per cubic yard increase on all classes of concrete, along with an increase of 8% on "masonry, precast and resale products" effective on April 1. Concrete Supply Co. sent the same reader an announcement of an $8 per cubic yard increase effective on April 1. "A lumber shortage has pushed prices up to record highs as builders stock up for what is expected to be one of the busiest construction seasons in years," the Journal reported on Saturday. "Lumber prices started rising last year after fires destroyed prime forests and a trade dispute between the U.S. and Canada restricted supplies. Now a shortage of railcars and trucks is forcing builders to pay even more....Forestry company Canfor said lumber shipments fell almost 10% in the final quarter of 2017, partly due to bad weather in western Canada." Readers are invited to send price change announcements to simonsonk@agc.org.

The Bureau of Labor Statistics on Monday presented estimates of construction productivity growth derived from the report BLS posted in January. Unlike the earlier report, the new estimates show productivity growth over the same time period (2007-2016) for all four construction segments that were studied. Productivity increased at an average rate of 5.3% for industrial building construction; 2.9% for multifamily houses; 1.1% for single-family; and 0.6% for highways, streets and bridges.

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