The producer price index (PPI) for finished goods had a record single-month drop in October: 2.6%, not seasonally adjusted (-2.8%, seasonally adjusted), the Bureau of Labor Statistics (BLS) reported on Tuesday, although the index still rose 3.7% over 12 months. The PPI for inputs to construction industries, which is a weighted average of materials used in every type of construction plus items such as diesel fuel that are consumed by contractors, fell 2.8% for the month, not seasonally adjusted, but was up 10% from October 2007. Prices by material diverged dramatically. The PPI for diesel plunged 17.5% for the month but was still up 13% over 12 months; liquid asphalt, -18% and 89%; asphalt paving mixtures and blocks, -4% and 45%; concrete products, -0.2% and 4.1%; steel mill products, -4.2% and 34%; copper and brass mill shapes, -7.5% and -13.5%. Some items continued to rise, including construction machinery and equipment, 0.5% and 4.2%; plastic construction products, 0.3% and 7.3%, insulation materials, 1.1% and 0.3%; and gypsum products, 2.2% and 4.3%. These differences produced wide variation in PPIs for inputs by construction type: highway and street construction, -5.8% and 15%; other heavy construction, -4.1% and 12%; nonresidential buildings, -2.8% and 9.4%; new multi-unit residential, -2.1% and 7.5%; and new single-unit residential, -1.2% and 8.1%. There was also a spread among PPIs for finished buildings: new industrial buildings, 4.5% and 7.6%; offices, 4.1% and 5.8%; warehouses, 3.9% and 6.4%; and schools, -0.2% and 7.9%. The PPIs introduced in July for nonresidential building subcontractors all rose about 2%  in October: concrete, 1.7%; roofing, 2.2%; electrical, 1.9%; and plumbing, 2.3%.

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AGC has compiled tables of PPIs for construction materials and segments as well as analysis. The data is from the Bureau of Labor Statistics monthly report and covers over 50 construction specific data series.

"It is hard to find a pulse in this year's batch of construction industry forecasts for 2009," Engineering News-Record reported on November 13. "McGraw-Hill Construction (of which ENR is part) is forecasting a 7.4% decline in construction starts in 2009, following declines of 12.4% this year and 8.0% in 2007. The U.S. Dept. of Commerce forecasts a 7.5% decline in total new construction put-in-place in 2009, following this year's 6.3% decline. The Portland Cement Association looks for construction put-in-place to fall 13.9% next year, after adjusting for inflation. FMI Corp. anticipates a 7.4% decline in total construction work next year. The National Association of Home Builders calls for housing starts to post their fourth consecutive year of double-digit declines, with another 16.2% drop in 2009."

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Voters on Election Day approved a huge schedule of state and local bond and tax issues in support of infrastructure spending for schools, colleges, other public buildings and highways. The Bond Buyer estimated that successful bond issues alone totaled $54 billion, the second-highest total after 2006 and about 82 percent of issues on the ballot.

The presidential and congressional election results make it more likely that infrastructure spending will be part of a new fiscal stimulus bill, either this month or early in 2009. In the long term, an Obama administration may be more supportive of a larger surface transportation funding bill once Congress gets around to writing a replacement for SAFETEA-LU, the funding bill that expires on September 30, 2009.

Meanwhile, however, credit markets, economic indicators and state and local receipts are all pointing to tough times in the near term for contractors. Municipal bond markets have reopened to some state and local borrowers, but developers continue to have trouble lining up bank financing. The dismal news about job losses, shrinking consumer spending, weakening exports and business investment make many private projects less attractive than they were a few months ago. Plunging portfolios have forced universities and hospitals to postpone construction that they expected to fund from endowment earnings or capital campaigns. Tumbling tax receipts are causing governors, mayors and school boards to rewrite budgets, often by deferring construction projects.

Owners who do go ahead with projects will be pleasantly surprised in many cases by how much less they cost than they would have a few months ago. As of November 10, the national average retail price of diesel fuel had fallen 38 percent from the peak in July to $2.94 per gallon, a 14-month low. Steel and copper prices are also beginning to skid, and other key materials are likely to drop over the next several months. Contractors and subcontractors are eager to bid.

These conditions should spur both public and private owners to launch construction in 2009, especially since materials prices could resume their upward march in 2010 if world economic growth accelerates again. But getting the go-ahead may require a lot of persuading.

Seasonally adjusted nonfarm payroll employment fell by 240,000 in October, and the unemployment rate rose from 6.1% to 6.5%, the Bureau of Labor Statistics reported today. Worse, 179,000 more jobs vanished in August and September than was estimated last month. In the past year, payroll employment has decreased by 1,078,000 (-0.8%). Construction accounted for nearly half of those losses-508,000 (6.7% of the October 2007 construction job total), including 49,000 in October. Construction workers had the highest unemployment rate (10.8%, not seasonally adjusted) of any industry in October, and the largest increase (from 6.1%) over 12 months. Average hourly earnings in construction in October rose to $22.14, up 5.1% from October 2007, vs. a 3.5% gain (to $18.21) for all private production and nonsupervisory workers. Employment in all construction segments fell to multi-year lows. One of the worst hit has been highway, street and bridge construction. The latest data for this segment is for September and is not seasonally adjusted, meaning comparisons are valid for the same month in different years but not across months. Employment in September 2008 totaled 371,000, the lowest September since 1998 and down 36,000 (9%) from the peak in September 2005. Many of these workers could be quickly re-employed if a stimulus bill is enacted that sends more highway funds to states.

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Construction Jobless Rate Soars; States Could Quickly Put Many Back to Work, Economist Simonson States

Washington, D.C.-"Today's unemployment report-grim reading on all counts-is especially bad for construction and shows the urgency of enacting infrastructure spending as part of a stimulus bill," Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC), said today following a Bureau of Labor Statistics report that showed the unemployment rate for construction workers jumped to 10.8 percent last month.

'Construction had—by far—the highest unemployment rate of any industry and the largest increase, up from 6.1 percent a year ago,” Simonson noted. “The industry accounted for nearly half of the million-plus jobs lost throughout the economy in the past 12 months.

“Many of those losses have been in heavy and civil engineering construction—highways and other public works,” Simonson observed. “Those workers could quickly be re-employed if the states had enough money to award contracts for projects they have ready to go. Contrary to some assertions, this money would quickly make its way into the economy, supporting equipment and materials manufacturing and services jobs as well as construction. State officials say they have thousands of projects ready to award without long delays.

“AGC urges Congress to act this month on a stimulus package that includes funding for highway, bridge and other infrastructure work,” Simonson stated. “In addition, the new Administration and Congress should give a high priority to renewing long-term highway, airport, water and wastewater funding bills next year.

“This is a great time for both public agencies and private owners to go ahead with construction,” Simonson concluded. “Many materials costs have tumbled since last summer, and there are plenty of skilled contractors ready to bid for work.”

The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. AGC represents more than 33,000 firms, including 7,500 of America’s leading general contractors, and over 12,500 specialty-contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters.  Visit the AGC Web site at www.agc.org.

Census, NABE Reports Show Weakness, Economist Simonson Warns

Washington, D.C.-"Nonresidential construction is on the verge of a potentially long slide," Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC), warned today. Simonson’s comments followed reports from the Census Bureau on construction spending in September and the National Association for Business Economics (NABE) on third-quarter and expected activity.

“The Census figures show nonresidential spending eked out a gain in September of 0.1 percent,” Simonson noted. “But private nonresidential spending was down nearly 1 percent from its high-water mark in June, while public spending tumbled 1.3 percent in September alone.

“Contractors have been reporting that developers put lots of projects on hold because of the credit freeze and weakening demand for stores, offices and other facilities,” Simonson observed. “Meanwhile, states had to postpone construction bond issues or defer budgeted projects in order to meet balanced-budget mandates.

“The NABE survey, conducted October 10-23 among corporate economists, found that companies on balance plan to trim spending on structures in the next 12 months,” Simonson stated. “That’s a reversal from the July survey.

“Construction has a lot riding on tomorrow’s election results—at local, state and national levels,” Simonson concluded. “There are many school and other bond issues up for a vote. And the next President and Congress will need to work promptly to enact long-term highway, transit, airport and water funding bills. Meanwhile, we urge immediate action on infrastructure spending as part of any stimulus bill this year or next.”

NOTE: Contact Simonson for a set of contractor and developer comments describing current credit and market conditions. The Census report is at www.census.gov/constructionspending; the NABE survey at www.nabe.com.

The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. AGC represents more than 33,000 firms, including 7,500 of America’s leading general contractors, and over 12,500 specialty-contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters.  Visit the AGC Web site at www.agc.org.

Real (net of inflation) gross domestic product fell at a seasonally adjusted annual rate (SAAR) of 0.3% from the second quarter to the third quarter, the Bureau of Economic Analysis reported on Thursday. Real gross private domestic investment in nonresidential structures rose 7.9% (SAAR), down from 18% in the second quarter but the 12th straight quarter in which this category of GDP has outpaced overall economic growth. Real government gross investment in structures increased 3.7%, down from 9.5%. Real gross private residential investment fell 19%, worse than the 13% decline in the second quarter and the 11th consecutive quarterly drop. Price indexes rose 7.2% (SAAR) for private nonresidential structures and 14% for government structures, but fell 1.2% for private residential investment.

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