Construction materials prices on the rise

The U.S. commercial construction industry is making strides with industry reports showing construction sector jobs on the rebound. But, conversely, so are materials prices.

According to the April 5 employment report by the U.S. Department of Labor, the construction industry unemployment rate fell to 14.7 percent in March, down from 15.7 percent in February. In all, the nation added 18,000 new construction jobs in March, and year-over-year, the construction industry workforce has expanded by 2.9 percent, or 162,000 jobs.

“Construction held up better than a number of other industries, in part, because of Hurricane Sandy-related rebuilding and the fact that construction’s cyclical timing tends to lag that of the broader economy,” said Associated Builders and Contractors Inc. Chief Economist Anirban Basu, in the organization’s March construction economic update report.

Overall, the national unemployment rate fell to 7.6 percent in March, a decrease from 7.7 percent the previous month and down from 8.2 percent in March 2012. Locally, the Springfield metropolitan statistical area unemployment rate was 6.1 percent in February – down slightly from a revised January rate of 6.2 percent – a full percentage point lower than the same month in 2012, according to the U.S. Bureau of Labor Statistics.

Pricing factors
Nationwide, construction materials prices rose 1.3 percent in February – marking the sharpest increase in 22 months, according to the March 14 producer price index report from the DOL. Overall, construction materials prices remain 2 percent higher than a year ago. Commercial construction materials prices rose 1.4 percent last month and by 1 percent on a year-over-year basis.

“A number of different factors are at work,” Basu said. “Key asset prices are generally on the rise globally; this is particularly apparent given the behavior of U.S. equity markets. Other prices are also on the rise, due in part to accelerating global economic growth and accommodative monetary policy.”

Locally, materials suppliers are seeing an uptick across the board, especially in metal supplies and drywall.

“Typically, we see four or five slight bumps throughout the year in these areas, but starting in January we saw a big jump,” said Brent Beattie, specialty sales manager for Springfield-based construction supplier Wildcat Materials Inc. “I believe suppliers are attempting to stabilize the market with one increase. It allows for easier planning and more stabilized bidding.”

Beattie, who also is a member of the Springfield Contractors Association board of directors, said the price of drywall jumped 4 cents per square foot in January from December.

“That may not seem like a lot, but that increases the cost of a standard 4-foot by 8-foot sheet by $1.28,” he said. “That can add up quickly on any building project.”

Slow start
Through March in the city of Springfield, new permit numbers are comparatively low. According to city permit data, 68 commercial permits with a combined estimated value of $22.52 million were awarded between Jan. 1–March 31 for new commercial buildings, additions and renovations. During the first three months of 2012, there were 100 commercial permits for new commercial construction, additions and renovations with a combined estimated value of $127.1 million. In first-quarter 2011, there were 99 permits issued, with an estimated value of nearly $60.51 million.

While the bulk of fiscal 2013 year-to-date permits are renovations – 54 – renovation spending amounted to only $6.1 million, compared to $15.1 million among seven new commercial construction projects.

Current commercial building projects under construction in the Ozarks include Mercy’s roughly $28 million, 63,000-square-foot rehabilitation hospital, an assisted living facility and two major additions at the Springfield and Spokane school districts.

“Local growth is steady right now, but that’s relative for us,” Beattie said, noting Wildcat Materials has increased its service area in recent years. “Yes, we are at the same level we were, but now we’re traveling a lot farther to maintain that level. We’re selling into Joplin, south down to Branson and Harrison (Ark.) and east into West Plains.”

ABC’s construction backlog indicator – a forward-looking national economic indicator that reflects the amount of work that will be performed by commercial and industrial contractors in the months ahead – remained unchanged at eight months through the fourth quarter of 2012. However, it is up 2.4 percent compared to a year ago. CBI is measured in months and reflects the amount of construction work under contract, but not yet completed by commercial contractors.

The Midwest region CBI showed a slight increase of 0.08 percent to December 2012 from the same month a year before.

“The Midwest wasn’t hit as hard by the recession as other areas, but we still have a lot of growth to make up,” Beattie said. “I don’t think we will fall back to the 2008 and ’09 levels, but I don’t see the market increasing by leaps and bounds either.”