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Construction Material Prices in May Spell ‘Bad News’ for Sector

June 21, 2018

May’s construction material prices are “bad news” for the sector, according to Associated Builders and Contractors, Inc. (ABC), following its analysis of U.S. Bureau of Labor Statistics that revealed the largest monthly increase in a decade. The latest data, released on June 13, indicated a 2.2% increase month-over-month (MoM) and an 8.8% increase since May 2017.

In a press release, ABC Chief Economist Anirban Basu said this “bad news” was caused by inflation, despite the price gain signifying the economy’s overall strength. Nonresidential construction input prices increased both MoM and year-over-year (YOY) by 2.3% and 8.9%, respectively, and included prices for softwood lumber, steel mill products, iron and steel and fabricated structural metal products. The most substantial MoM and YOY gains were in crude petroleum at 8.4% and 58.3%.

“Construction materials are becoming increasingly expensive because of policymaking,” Basu said in the release. “All eyes are on prices of metals, which are increasing briskly. On a YOY basis, iron and steel prices are up nearly 13%. Steel mill product prices are up nearly 11%. Separately, the price of softwood lumber, which is the subject of a dispute with the Canadians, is up more than 15% compared to a year ago.”

The chief economist explained how price increases raise several questions about the future, questions that don’t yet have answers. Whatever the final outcome, ongoing problems are possible for the construction industry, leading to lessening demand for services or fluctuations in margins.

-Andrew Michaels, editorial associate

Builder Confidence Dips Slightly in June

June 19, 2018

Builder confidence for newly-built single-family homes took a step back in June, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The index dipped to 68 this month, just shy of the six-month average of 70.

The main factor behind the modest decline was the rising cost of softwood lumber, said NAHB and Wells Fargo. “[B]uilders are increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability,” said NAHB Chairman Randy Noel in a release. “Record-high lumber prices have added nearly $9,000 to the price of a new single-family home since January 2017.” However, recent prices of lumber “have ebbed … which may boost prospects for the second half of 2018,” added Wells Fargo Securities.

The three components that make up the HMI—present sales, future sales and buyer traffic—each declined one point in June. Current sales came in at 75, while expectations in six months fell to 76, and buyer traffic hit 50.

Regional HMI scores, measured on a three-month moving average, fared slightly better in June. The Northeast increased two points to its highest level since 2005, stated Wells Fargo. The West and Midwest were unchanged, and the South declined one point.

-Michael Miller, managing editor

Year-Over-Year Nonresidential Construction Spending Jumps 6% in April

June 6, 2018

Although there was no fluctuation in April’s month-over-month (MoM) nonresidential construction spending, the U.S. Census Bureau revealed a 6% gain over last year’s spending, the highest year-over-year (YOY) increase coming from within the conservation and development sector. In its analysis of the bureau’s data, Associated Builders and Contractors (ABC) reported boosts in YOY private and public-sector spending by 5.3% and 7.3%, respectively.

The data, released on June 1, found no change in nonresidential construction spending, which hit nearly $747,000—roughly $747,200 was reported in March. However, spending increased by almost $43,000 from April 2017’s recording. Unlike the MoM declines in seven out of the 16 nonresidential sectors, April 2018 only saw YOY drops in three sectors: manufacturing, highway and street and power—this is the second consecutive decline for highway and street. Conservation and development saw the highest YOY gain by about 26%, followed by transportation, lodging and communication.

The economy continues to experience strong momentum as well as an abundance of confidence, ABC Chief Economist Anirban Basu said in the press release.

“It’s important to remember that the construction spending data generally have failed to display as much economic strength as many other indicators,” Basu said. “Even the most recent monthly readings on construction spending were unspectacular, but the year-over-year numbers are consistent with ongoing economic and industry progress. As always, there is a need to pay attention to any clouds forming on the horizon.”

Inflation and wages are putting pressure on the economy, he added, in part by the U.S. administration’s steel and aluminum tariffs and the growing costs to finance these construction projects.

-Andrew Michaels, editorial associate

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