PPI slows in November; Reed says starts rise; Manpower hiring outlook is glum

Posted by tED magazine on Monday, December 19, 2011

By Ken Simonson

Click here for current economic information and for November PPI tables.

The producer price index (PPI) for finished goods rose 0.1%, not seasonally adjusted (0.3%, seasonally adjusted), in November and 5.7% over 12 months, the Bureau of Labor Statistics (BLS) reported on Thursday. The PPI for construction inputs—a weighted average of prices of all materials used in construction, plus items consumed by contractors such as diesel fuel—declined 0.1% in November but rose 6.2% from a year earlier. The gap between input costs and PPIs for new nonresidential buildings narrowed a bit, as the PPI for new industrial buildings was flat for the month and up 3.4% over 12 months; offices, up 0.2% and 3.7%, respectively; warehouses, 0 and 3.9%; and schools, 0.1% and 4.5%. PPIs for nonresidential subcontractors’ new, repair and maintenance work varied: concrete, -0.8% and 1.4%; electrical, -0.1% and 3.5%; plumbing, 0.4% and 3.6%; and roofing, -.1% and 4.6%. Input prices also diverged widely: diesel fuel, 8.9% and 32%; steel mill products, -1.1% and 13%; asphalt paving mixtures and blocks, -0.5% and 8.1%; insulation materials, -0.4% and 5.4%; plastic construction products, -1.3% and 3.9%; lumber and plywood, -0.7% and 0.2%; gypsum products, -0.4% and -1.0%; and copper and brass mill shapes, -2.3% and -7.7%.

The value of nonresidential construction starts increased 2.4% in November, not seasonally adjusted, and 9.1% year-to-date (YTD) for the first 11 months of 2011 combined, relative to the same period in 2010, Reed Construction Data reported on Wednesday, based on data it compiled. Commercial starts fell 4.1% in November but jumped 15% YTD; industrial building starts tumbled 63% for the month but leaped 24% YTD; institutional building starts rose 14% and 9.7%, respectively; and heavy engineering (nonbuilding) starts fell 4.3% in November but climbed 5.0% YTD. Within the heavy category, road and highway starts rose 6.8% and 1.2%; water and sewage starts fell 12% for the month but rose 16% YTD.

“For Quarter 1 2012, employers have a positive Outlook in 12 of the 13 industry sectors included” in a survey of hiring intentions of 18,000 U.S. employers released by Manpower Inc. on Tuesday. “Employers in one industry sector have a negative Outlook: Construction (-7%),” as 10% of respondents said they plan to increase hiring vs. 17% who plan to decrease hiring. That represented a deterioration in hiring intentions from the net -4% reading in the fourth quarter.

A report on the economic contribution and outlook for shale gas released on December 6 by IHS Global Insight (www.ihs.com/EconomicContributionofShaleGasintheUS) estimated that the industry accounted for 63,000 construction jobs: 48,000 direct jobs (construction by gas drilling, pipeline and processing industries), 12,000 indirect jobs (through demand from suppliers) and 3,000 induced jobs (through added spending by direct and supplier industry workers and owners). By 2015, the total is projected to be 71,000: 45,000 direct, 22,000 indirect and 4,000 induced jobs. The study notes, “Several companies have begun incremental expansions of their existing assets (Royal Dutch Shell, The Williams Companies, LyondellBasell, and Westlake Chemical), made and announced new investments (Dow Chemical), and others have announced major capital investment plans for the future (Chevron Phillips and ExxonMobil).” Most of this construction would occur in Gulf Coast states, but “Royal Dutch Shell is planning to build a world-scale ethylene cracker with an integrated derivative unit in the Appalachian region of the United States. The cracker would process ethane from Marcellus natural gas to produce ethylene.”

Employment among all construction occupations fell 25% (42% for residential, 16% for nonresidential) between the peak month of May 2006 and May 2010, with employment for tapers and carpenter helpers falling by more than 50%, BLS reported in “Construction employment: a visual essay” in the November Monthly Labor Review (www.bls.gov/opub/mlr/2011/11/mlr201111.pdf). The states with the steepest declines were Nevada, Arizona, Florida and California. California had the largest decline in numbers (360,000 or 41%). Employment increased over the four-year span only in Wyoming (12%) and North Dakota (10%). Among metro areas, “employment in construction occupations more than doubled in Pascagoula, Mississippi, and increased by more than 80% in Oshkosh-Neenah, Wisconsin.” The steepest metro declines were in Reno-Sparks and Carson City, Nev. (both more than -60%). “Employment declines were often steeper among the lower-paid construction helper occupations. U.S. average wages for construction occupations in May 2010 were $21.12 per hour, about the same as the all-occupations average of $21.35. Between May 2006 and May 2010, average hourly wages grew 2.7% per year for construction occupations, less than the 3.2% growth in hourly wages for all occupations….Earning an average hourly wage of $33.66, elevator installers and repairers had the highest wage among construction workers in May 2010….The San Francisco-San Mateo-Redwood City metropolitan division had the highest mean wage in May 2010 for construction workers at $30.14. The…division had above-average hourly wages for all occupation groups, but construction occupations had the highest wage premium of all the major occupational groups.”

In 2010, 16 of 22 industry groups contributed to growth in real (inflation-adjusted) gross domestic product (GDP), the Bureau of Economic Analysis reported on Tuesday. Of six industry groups that contracted in 2010, the largest declines occurred in “real estate and construction, which fell for the sixth consecutive year at 3.2%.” Value added by construction amounted to only 3.5% of GDP in 2010, down from 3.9% in 2009 and 4.3% in 2008.

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved