• Construction Prices rose in Q3 of 2021 at 0.5% per month

• Fed Watch: The Federal Reserve continued monetary stimulus in line with the “new normal” and provided more specific indications on time horizons

• Architectural Billings continued to grow steadily in Q3 despite lower growth in inquiries and contracts

• Construction Dollar Volume: Residential construction continues to boom reaching new highs in Q3; non-residential construction is down 3% annually but improved 0.6% in Q3, while infrastructure spending is unchanged

• Construction Job Growth: Approximately 34,000 construction jobs were added in Q3, or +0.5%; construction employment is still down 1.5% since pre-pandemic

• New York Stock Exchange price index growth moderated but reached new highs; overall the NYSE is up 27% from September 2020

• Growth in Employment: Monthly average job growth through Q3 was 0.55M with most of the increase in July as the resurgence of the pandemic slowed growth in August and September

• Gross Domestic Product: Initial GDP projections point to an annualized growth rate of 12.2% for Q3 2021

• Commodities: COVID-19 projections, a declining USD, residential construction spikes, and natural disasters have created short term price spikes in PVC and steel (particularly for non-standard shapes); lumber prices declined

• Personal Consumption Expenditures (PCE) price index increased 3.6% year over year (August 20/ August 21) in line with the Federal Reserves mandate to target long term average inflation of 2% annually

Fed Watch

Inflation and employment targets propel monetary policy, and subsequently construction prices. The “new normal” of pushing inflation above 2% and high labor force participation will likely mean continued interest rates below long-term averages through 2024 and continued asset purchases through 2022. Continuing low interest rates are good for stability in the interest-rate-sensitive construction sector. https://www.federalreserve.gov/monetarypolicy/files/monetary20210922a1.pdf

Also, visit our Market Outlook Construction Forum slides and video for more info on this topic.          
https://vermeulens.com/images/PDF/Covid-Updates/Market-Outlook-Construction-Forum-Oct-1-2021.pdf

https://www.gotostage.com/channel/7836bfba41854760a16f991a44002c5e

Vermeulens Construction Cost Index

As contractors have been able to rebuild their backlogs and workflow, cost projections have begun to reverse and project for low to moderate cost escalation in the near future. 

Price increases for Q3 2021 nationally trended towards 0.5% monthly. 

For the past 34 years, construction prices trended at a 3.5% annually compounded escalation rate.  The rate of escalation seen in construction costs relates to the target of 2% annual inflation for consumer prices and the monetary policy used to achieve this goal. Consumer inflation is below medium-term target of greater than 2%.

Following the global recession construction bid prices for non-residential projects fell by 14% from their peak in 2008.  During 2011, Vermeulens saw an average selling price increase of 3%.  This was followed by a 6% increase in 2012, 8% in 2013, 6% in 2014, 8% in 2015, 6% in 2016, 5% in 2017, and 4% through all of 2018 and 2019. The effects of COVID-19 flattened the curve from April 2020 to June 2021.

The chart below illustrates bid prices for non-residential construction projects relative to the Construction Trendline (1986 = 100) of 3.46% and the 2% Personal Consumption Expenditures Index Trendline.

AIA Billings

Architectural billings are a leading indicator for future construction volume.  A score greater than 50 indicates growth.  Design fee billings typically indicate construction volume 9 - 12 months in advance. 

Architectural Billings continue with positive growth. Inquiries have been steadily rising since Q4 2020, materializing into contracts in Q1 2021. Billings continue strong despite a 3 - 4 month slide in the rate of increase for inquires and contracts. https://www.aia.org/pages/6444946-architecture-firm-billings-end-the-summer-

Put In Place Construction

Construction dollar volume grew in Q3, increasing 2.5% since May 2021 posting an 11% year over year increase (August 20/August 21).  Construction dollar volume is the main driver of construction prices.

Residential dollar volume continued its explosive growth, improving year over year by 27.4% (August 20/August 21).

Non-Residential spending is down 3% year over year (August 20/August 21). Improved backlogs, attrition, and shortages are driving price increases in this sector. 

Infrastructure spending has been stable since Q3 2020, with a 0% year-over-year change (August 20/August 21).

http://www.census.gov/construction/c30/c30index.html

Commodity Prices

Crude Oil reached $75.22 per barrel at the end of September 2021. Prices increased relatively throughout the quarter, peaking at $75.44 on September 28th.

Structural Steel prices through Q2 increased from Q1 2021 levels. Structural sections and beams increased by 19.74% and rebar is up by 11.96% since March 2021. Steel futures indicate a gradual return in prices by 2022.

Construction Labor Market  

Construction Unemployment at the end of Q3 sits at 4.5%, down from 7.5% at the end of Q2, reflecting a lack of increase in labor supply. 

Construction Job Growth was 34,000 or 0.5%, this quarter. Wage and profit increases in the sector, driven by residential volumes, will draw new entrants, as well as restructuring from other sectors of the economy. Labor shortages are likely due to the uncertainties of the continuing pandemic, particularly for families with school-age children.

Construction Labor Force Growth Rate

Construction Labor Force Growth Rate is calculated by the current 12-month average in construction employment relative to previous 12 month average in construction employment.

Total Jobs and Market Performance

Total Jobs in the US economy during Q3 2021 saw an average monthly increase of 550,000 jobs, as they slowly returned through continued economic recovery efforts. July saw the biggest single-month increase (+1.09M jobs) of Q3. The rest of the quarter saw moderate growth, ending with 194,000 jobs added in the month of September. The sudden change and rapid response due to the pandemic contrast with the extended financial recessions of the past 35 years.

The chart below removes short-term fluctuations in job growth by looking at a 6-month moving average. The size of the labor force grows at 100,000 per month due to population increase.  Sustained periods of recession, where job creation remains below 100,000 jobs per month, has accompanied dips in construction prices as illustrated by the red bars below.

https://data.bls.gov/timeseries/CES0000000001

Employment Percentage of Total Workforce

Total Employment as a percentage of total workforce continued its recovery reaching 90% at the end of Q3 2021.

The chart below shows total employment as a percentage of the US workforce.  The Federal Reserve will accommodate growth to maximize employment. Both the size of the labor force and participation rates are at play, as we have seen in recent months, where labor force growth has not kept pace with employment opportunities, resulting in shortages. This is likely an effect of the resurgence of the pandemic through Q3.  

Forecast - National Trend

Construction prices rose at 0.5% per month through Q3. Contractor backlogs fell through Q3 as confidence declined with the resurgence of the pandemic.  Monetary policy, shortages, and improving pandemic forecasts point to continued construction price escalation of 4 - 6% per year over the medium term.

The Federal Reserve’s “new normal” will raise inflation above the recent trend of 1.5%.  Short-term inflation could exceed 2.5% for a 3 - 5 year period in order to re-establish the 2% long-term target.

Vermeulens strives to give our clients the greatest possible value and results for their projects.

 If you need any help with your projects, want to set up a presentation to your group, would like to meet to see how we can help your team, or are looking for company information, 

Please contact: Marisol Serrao, Director of Marketing