Construction price escalation nationally has trended to 4% per annum for Q3 2018. Due to consistent increases in construction costs over the past few years, Vermeulens Index long term trendline is up from 3.3% to 3.4%.
Interest rates are up due to solid growth and full employment. In view of realized and expected labor market conditions and inflation, the Federal Open Market Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent.
Commodity prices rose 6.3% in Q2 before reversing and negating any changes in commodity pricing over the quarter. Energy indices bounced back from the sharp decline experienced in Q1, while metals indices are trending towards new lows for 2018.
Consumer price index: After a positive trend in the second half of 2017, CPI growth has slowed and dropped the long-term average from 2.6% to 2.5%
Construction dollar volume has increased by 9.0% year over year (Sept 17/Sept 18). Year over year growth can be attributed to Residential (7.8%) and Infrastructure (7.7%) spending. Non-Residential spending has continued its upward trend from 2017 Q4 and is up 9.9% year over year.
The stock market continued its positive trend through 2018 leading up to the end of the quarter prior to a market correction taking form. So far 2018 has seen the stock market rise and fall by 11%, however, it has experienced a near net zero change since the beginning of the year. Consistent labor growth throughout this market variance indicates that this is not a new forming trend.
Six-month rolling average job growth at the end of Q3 sits at 190,000 jobs, showing a reversal of the moderating trend since the second half of 2014. Labor force participation rates are high by historic measures but do not appear to be causing inflationary pressure, perhaps due to increased productivity.
We are at full employment in the construction sector. Q3 has seen the addition of 70,000 construction jobs (1.0%) nation-wide. Wage and profit increases in the sector will continue to draw employment from new entrants and other sectors.
Gross Domestic Product GDP maintained a strong annualized growth rate of 4% through Q2 2018, however long-term expectations have fallen slightly. GDP growth since 1990 follows a 2.5% trendline, however, the past decade is more in line with a 2.2% annual growth rate.