Contractors appear to be closing the gap between rising input costs and bid prices, based on the latest Producer Price indexes (PPIs). 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—increased 1.4% in April from March and 5.6% year-over-year (y/y) from April 2018, the Bureau of Labor Statistics (BLS) reported on Thursday. Increases ranged from 4.9% y/y for new office construction to 5.0% for health care buildings, 5.2% for warehouses, 6.2% for schools and 6.9% for industrial buildings. Increases in PPIs for subcontractors' new, repair and maintenance work on nonresidential buildings ranged from 2.3% y/y for roofing contractors to 5.4% for plumbing contractors, 5.5% for electrical contractors, and 7.9% for concrete contractors—the largest y/y jump for concrete contractors in the 12-year history of the index. In contrast to these output prices, the PPI for inputs to construction—excluding capital investment, labor and imports—increased 1.0% for the month and 2.8% y/y. This index covers both goods (56%) and services (44%). The PPI for energy inputs to construction climbed 6.7% for the month but only 3.0% y/y. The PPI for nonenergy goods inputs rose 2.3% y/y; the index for services inputs increased 3.3% y/y. Price increases cooled off for some previously fast-rising inputs such as steel and diesel fuel. Inputs important to construction that had large one- or 12-month price changes include asphalt paving mixtures and blocks, down 2.8% for the month but up 6.6% y/y; architectural coatings, -1.0% and 6.2%, respectively; steel mill products, -1.7% and 5.8%; construction machinery and equipment, 0.2 and 5.7%; and gypsum products, -1.0% and -6.1%. AGC posted tables and an explanation of PPIs.
Today the Trump administrator increased tariffs from 10% to 25% on a list ("List 3") of $200 billion of Chinese goods, including construction materials, components and equipment parts. In an April 29 "Eye on Housing" post, the National Association of Home Builders estimated that "The List 3 goods comprises 5,745 items, approximately 450 of which are commonly used in the residential construction industry....The value of the 450 building materials included on List 3 is roughly $10 billion. A 10% tariff on these goods, therefore, represented a $1 billion tax increase on the housing industry."
Investment research firm Thompson Research Group issued its April building products survey of manufacturers and distributors on Thursday, including these comments. Steel stud pricing: "There was a 10% increase in January 2019 and another 10% increase in April 2019. Majority [72%] of survey respondents believe the April 10% price increase will be 'not successful.'" Wallboard pricing: "Conviction for the early 2019 wallboard price increase has waned as we headed into April." Insulation pricing: "Feedback on the early 2019 high-single digit price increase has been generally positive." Roofing pricing: "Residential pricing trends remain positive, with greater pricing momentum vs. non-res roofing products."
There were 360,000 job openings in construction at the end of March, not seasonally adjusted, a jump of 126,000 (54%) from March 2018, and the highest total for any month since the series began in December 2000, BLS reported on Tuesday in its latest Job Openings and Labor Turnover Survey (JOLTS) release. The industry hired 355,000 employees in March, not seasonally adjusted, implying that contractors would hypothetically have hired twice as many workers if they had been able to fill every opening. The rate of layoffs and discharges, 2.3% of March employment, was close to the lowest ever for March (2.2% in 2014 and 2016)—another sign that contractors expect to remain busy. BLS posted an article on Thursday in the Monthly Labor Review that showed the job openings rate (openings as a percent of employees and openings combined) has risen more for large firms (500 or more employees) than small firms (1-49 employees) or medium-sized firms, while rates of hires and layoff and discharge are similar for all three firm sizes. These measures also were leading indicators of the 2007-2009 recession.
Health care construction spending increased just 0.7% from March 2018 to March 2019, compared to 4.8% y/y in for all nonresidential public and private construction spending, Census Bureau data show. Within health care, hospital construction spending fell 3% y/y, medical building construction increased 13%, and special care spending was flat, as providers such as urgent care, outpatient surgical, rehabilitation and hospice facilities increasingly move out of hospitals. An article in the Spring issue of NAIOP's Development magazine reports, "The portfolio strategy team at CoStar analyzed its medical office and medical tenant data and found that while most medical tenants occupy office properties (70%), the next largest category is retail property (18%), with the remaining 10% occupying industrial and flex or R&D properties. Medical tenants have doubled their presence in retail properties over the past decade. In 2008, only 1.5% of retail occupancy was medical, growing to...2.9% in 2018....The share of office properties that are medical also grew from 5.2% in 2008 to 7.7% in 2018. Therefore, although medical tenants grew in both office and retail sectors, over the same decade they increased their presence in retail space at twice the rate....Further, among all medical office tenants, only 13.6% leased retail spaces in 2008, while more than a third (33.5%) did in 2018. During the past decade, medical tenants have slightly decreased their presence in office properties (73% to 69.8% in 2018), as well as their presence in all other property types, such as industrial and flex properties. The data also support the observation by the development community that ambulatory care is the type most likely to move into retail space...the top industries for medical office in retail properties are dentist offices (18.2%); offices of other health care practitioners (17.5%); outpatient care centers (9.7%) and physician offices (9.3%).