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Construction Health Update: Materials Stifle Score at 81


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Our industry’s national Construction Health Score has not changed from last week’s six-week low of 81. The weight of this low score continues to be caused by increased energy and materials prices. Amid the labor shortage, low unemployment rates and increased wages are carrying our labor score.  Economists remain hopeful that a strong U.S. dollar, high employment, and low mortgage rates will cause gains in our investments score. The Commerce Department will release new home sales data tomorrow, Tuesday, October 26 and this article will be updated accordingly.

Labor

According to a report from the Associated General Contractors of America, construction job openings are at their highest level in a decade. But the skilled-worker shortage continues to drive labor costs up, both in needing to pay for more hours and paying their workers more per hour to complete projects on schedule. 

According to the labor department, two-thirds of construction firms are having a hard time finding qualified craft workers to hire. Regionally, 35 states added construction jobs between September 2015 and September 2016 while The District of Columbia and 15 states shed construction jobs over the year. California and Florida created the most jobs for the year to date with 3,900 and 2,200 new jobs respectively. While Wyoming (4,700 lost jobs) and Kansas (6.9% lost jobs) had the largest declines.

Investments

Spending on new single-family construction has slowed while the multifamily market is experiencing an increase. There were 1.05 million annualized housing starts nationwide in September 2016––the lowest total recorded in the past year. Compared to the previous month, the number of annualized housing starts dipped 9% in September 2016. They have consistently fallen over each of the past 2 months and decreased a total of 14.0% since July 2016 overall. There were also 951,000 residential housing completions in September 2016––the lowest monthly total recorded in the past year. Meanwhile, building permits for privately owned housing units rose 6.3%.

Construction investment in the education sector is still in a post-recession slump, even as spending on all construction continues to rise overall from its low point in early 2011. The education sector remains one of the biggest factors of nonresidential construction growth, but is still 35% below peak spending for this sector in the first quarter of 2009. It appears that more colleges are financing new construction via public-private partnerships, and are leaning toward projects that can produce revenue streams, such as housing, dining, parking, and other facilities that might have user fees attached. With upcoming elections, it is possible that this could change in 2017.

Commodities & Materials

The latest Producer Price Index from the Bureau of Labor Statistics shows a continuation of the upward trends in the prices of building materials. As a whole, the PPI rose by 0.3% this month, and the price of core goods rose 1.5% over the last 12 months. Likewise, concrete has risen by 20% over the last five years. Nearly one-third of this rise in prices for goods was attributable to 5.3% jump in gasoline prices. The WTI crude oil spot price had the most notable recent gains––16.8% higher than the average over the past 12 months. 

The U.S. dollar index hit its highest levels since early February on Friday amid heightened expectations that the Federal Reserve will hike interest rates before the end of this year. Investors currently predict a 64% chance of a rate hike at the Fed's December meeting; according to federal funds futures Fed Rate Monitor Tool. Global markets are bracing for a slew of data this week that may yield more insight into metals demand, including third quarter U.S. GDP and purchasing managers’ index (PMI) data from several developed economies. We are expecting rebar futures to show the most notable recent gains, as well as growing 6.6% in the past year. 

Meanwhile, the demand for lumber has been steady, given the increase in new home construction. More recently, lumber futures have exhibited the most notable recent decline, but still rose 34.9% in the past year. This was 8.2% higher than the average over the past 12 months. Prices are quoted in Dollars per 1,000 board feet. Right now, lumber is telling us that the market is not at a boiling point just yet. We are likely to see a continuation of demand for new home construction deep into 2017.

That’s all we have for now. Keep building and we’ll keep crunching the numbers. Check back here daily as numbers refresh and we’ll continue to translate this into meaningful digests that will help you make informed decisions all week long.

Click here for recaps from Construction Health Updates from past weeks.

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