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Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick, Chief Economist at ConstructConnect
Alex Carrick is Chief Economist for ConstructConnect. He is a frequent contributor to the Daily Commercial News and the Journal of Commerce. He has delivered presentations throughout North America on the Canadian, United States and world construction outlooks. A trusted and often-quoted source for … More »

Now it’s the Turn of U.S. Construction Material Costs

 
January 25th, 2016 by Alex Carrick, Chief Economist at ConstructConnect

Article source: CMDGroup

The cost of construction is largely determined by labor and material inputs.

The previous Economy at a Glance studied U.S. year-over-year average hourly wages in construction relative to all private sector jobs and other major industries.

Expanding the analysis somewhat, the Bureau of Labor Statistics (BLS), in its monthly Employment Situation report, publishes four series on wage rates. Table B3 records average hourly and average weekly earnings for all employees in a range of industries. Table B8 has similar average hourly and weekly earnings information, but only for production and non-supervisory personnel.

For construction, the December 2015 year-over-year results were +2.9% (average hourly) and +4.2% (average weekly) from Table B3 and +2.7% (average hourly) and +3.3% (average weekly) from Table B8.

To summarize, the earnings results for construction ranged from +2.7% to +4.2% annually.

For the economy as a whole, the year-over-year percentage changes were more modest, ranging from +2.1% (average weekly earnings for production and non-supervisory personnel) to +2.5% (average hourly earnings for all workers).

Okay, that’s enough about U.S. labor rates for now. In this current EAAG, it’s the turn of America’s construction material costs.

Table 1, accompanying this EAAG, shows historical cost movements dating as far back as three years ago for a full array of construction materials, based on the Producer Price Index (PPI) series calculated by the BLS.

U.S. Producer Price Index (PPI) Results
% Change in the December 2015 Index from:

3 YEARS 1 YEAR 6 MONTHS 3 MONTHS 1 MONTH
AGO AGO AGO AGO AGO
Product/Good/
Service/
Commodity
Final Demand Construction 7.4% 1.8% 1.2% 0.6% -0.1%
Construction for private capital investment 7.4% 1.8% 1.3% 0.6% 0.0%
Construction for Government 7.5% 2.0% 1.3% 0.9% 0.0%
New warehouse building construction 7.4% 2.1% 1.4% 0.9% 0.0%
New school building construction 8.1% 2.2% 1.5% 1.1% 0.1%
New office building construction 7.2% 2.1% 1.0% 0.2% -0.2%
New industrial building construction 8.2% 2.1% 1.4% 0.7% 0.1%
New health care building construction 6.6% 0.5% 1.3% 1.0% 0.0%
Architectural & engineering services 5.7% 2.4% 0.7% -0.3% 0.0%
Construction machinery & equipment 4.3% 1.1% 0.3% 0.0% 0.0%
Asphalt -43.1% -44.0% -27.6% -29.9% -8.4%
Plastic construction products 1.9% 0.7% -1.0% -0.1% 0.4%
Softwood lumber 0.5% -6.8% -2.9% 0.8% -2.6%
Hardwood lumber 15.3% -9.4% -1.9% -0.9% 0.8%
Millwork 8.1% 1.3% -0.2% 0.1% 0.0%
Plywood 0.3% -7.0% -2.5% -1.0% -1.1%
Gypsum 21.8% -0.2% -3.4% -2.4% -2.2%
Insulation materials 12.0% 2.3% 0.8% 2.2% -0.2%
Construction sand, gravel & crushed stone 10.1% 3.5% 0.8% 0.2% 0.0%
Cement 18.0% 6.7% 0.4% 0.2% 0.3%
Ready-mix concrete 12.5% 3.7% 0.9% 1.3% 0.4%
Precast concrete products 10.7% 2.4% 2.1% 0.6% 0.9%
Prestressed concrete products 3.3% -1.4% 0.2% -1.0% 0.0%
Brick (clay) 3.9% 1.3% -0.6% -0.5% -0.2%
Coal -12.4% -4.4% -3.6% -0.9% -0.2%
Iron ore -28.6% -3.8% -12.5% -3.3% -12.2%
Iron and steel scrap -57.2% -52.0% -41.3% -29.5% -0.6%
Steel bars, plates and structural shapes -18.6% -20.0% -11.5% -9.5% -3.4%
Fabricated structural metal products 0.1% -0.9% -1.3% -0.4% 0.0%
Flat glass 11.0% 5.6% 3.2% 1.2% 0.9%
Lighting fixtures 3.6% 1.4% 0.1% 0.0% -0.1%
Plumbing fixtures & brass fittings 6.1% 1.3% 0.2% 0.2% -0.7%
Heating equipment 5.2% 2.0% 1.0% 0.3% 0.1%
Copper wire & cable -27.8% -19.1% -13.2% -8.9% -8.1%
Fiber optic cable -3.3% -0.2% 0.7% 0.7% 0.0%
Regular gasoline unleaded -51.3% -31.5% -37.5% -17.5% -11.8%
Diesel Fuel -59.1% -43.6% -34.7% -23.1% -22.9%
Jet Fuel -53.8% -39.4% -31.0% -15.6% -12.5%
Natural gas -40.1% -46.5% -16.1% -12.6% 5.2%
Natural gas to electric utilities -4.3% -11.6% -0.4% 0.6% 0.8%
Commercial electric power 3.1% -0.4% -8.1% -8.3% 1.0%
Industrial electric power 0.5% 0.5% -9.4% -8.3% 1.2%
Residential electric power 5.6% -0.1% -3.9% -4.1% 0.2%
Commercial natural gas -6.6% -13.0% -0.6% 1.2% -0.1%
Industrial natural gas -15.3% -18.7% -2.9% -1.9% -1.3%
Residential natural gas -5.5% -14.2% -3.1% -1.2% 0.2%
Construction materials 2.2% -2.1% -1.3% -0.7% -0.4%

Data source: Bureau of Labor Statistics
(1982 = 100.0 is the base for all indices).
Chart: CMD – CanaData.

Many construction materials have turned in distressingly weak performances of late.

In forestry products, softwood lumber is -6.8% year over year (y/y); +0.8% quarter to quarter (q/q); and -2.6% month over month (m/m). Hardwood lumber is -9.4% y/y and -0.9% q/q, but +0.8% m/m. Plywood is -7.0% y/y and -1.1% m/m.

Copper wire and cable is -19.1% y/y and -8.1% m/m. The history of this series is shown in Graph 1.

The retreat in China’s ‘real’ (i.e., inflation-adjusted) gross domestic product or GDP growth rate from between +10.0% to +12.0% in the mid-00s to a still formidable but significantly reduced +6.9% last year is having a devastating impact on world metal and mineral commodity prices.

And we haven’t even highlighted the really big price drops yet. The collapse in the global price of oil explains why asphalt is -44.0% y/y; -29.9% q/q; and -8.4% m/m.

Steel bars, plates and structural shapes are -20.0% y/y; -9.5% q/q; and -3.4% m/m. Their primary ingredient, iron and steel scrap (Graph 2), is -52.0% y/y; -29.5% q/q; and -0.6% m/m.

Steel Bars, Plates & Structual Shapes Price Index – U.S.
Steel Bars, Plates & Structual Shapes Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD

Historical graphs have been compiled for 15 of the materials listed in Table 1. (They all appear at the web-site version of this story). The iron and steel scrap curve stands out for recently dipping all the way back to its previous trough level. The world’s major iron ore producers have been super-aggressive in maintaining production levels, at the expense of posted prices, to weed out the less-efficient mines of their competitors.

The number of materials displaying price increases has been quite limited. Flat glass is +5.6% y/y; +1.2% q/q; and +0.9% m/m. There have been pockets of strong demand, such as for curtain-wall glazing to build new high-rise office and residential towers in the Big Apple, New York.

The price of cement (Graph 3), after a small crater in 2011 and 2012, has moved higher and is now +6.7% y/y and +0.3% m/m. Ready-mix concrete (Graph 4), hardly stumbling at all in the fiscal-crisis hard times, has done even better. It is now +3.7% y/y; +1.3% q/q; and +0.4% m/m.

Cement Price Index – U.S.
Cement Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.

The construction materials price index calculated by the BLS and appearing on the bottom line of Table 1 is -2.1% y/y. The final-demand costs (i.e., incorporating more than just material inputs) of constructing various types of non-residential buildings, appearing in the top portion of Table 1, fluctuate mainly in a narrow band around +2.0%.

Softwood Lumber Price Index – U.S.
Softwood Lumber Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Hardwood Lumber Price Index – U.S.
Hardwood Lumber Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Plywood Price Index – U.S.
Plywood Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Gypsum Price Index – U.S.
Gypsum Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Cement Price Index – U.S.
Cement Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Ready-mix Concrete Price Index – U.S.
Ready-mix Concrete Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Coal Price Index – U.S.
Coal Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Iron Ore Price Index – U.S.
Iron Ore Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Iron and Steel Scrap Price Index – U.S.
Iron and Steel Scrap Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Copper Wire and Cable Price Index – U.S.
Copper Wire and Cable Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Fiber Optic Price Index – U.S.
Fiber Optic Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Asphalt Price Index – U.S.
Asphalt Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Diesel Fuel Price Index – U.S.
Diesel Fuel Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.
Jet Fuel Price Index – U.S.
Diesel Fuel Price Index - U.S.
The last data point is December 2015.
Data source: U.S. Census Bureau (Producer Price Index/PPI series).
Chart: CMD.

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