Construction Costs Report

October 2011

Construction Spending On The Rise

Construction Spending
Seasonally Adjusted, $Billions
$520 $320 $310
Private Spending Public Spending

Summary
Construction spending is steadily improving, despite numerous economic setbacks. Private sector construction spending has shown strong growth since March. Construction costs are showing early signs of downtrend. Risks remain elevated, but latest economic data suggests new construction will continue on a slow, but positive trajectory.

$505 $300 $290 $490 $280 $475 Aug-10 Dec-10 Private (left) Apr-11 $270 Aug-11

Public (right)

Source: Moodys

ENR Cost Indexes

September 2011, % chg

Analysis
Private sector construction has generally been trending upwards since March of 2011. Mo/Mo Yr/Yr +3.2% +2.6% +3.8% +2.9% +5.6% After dipping slightly in July, private construction spending rose 0.4% in August and is 0.9% higher than its level in August of 2010. Now that the dust is settling - following the uncertainty surrounding the debt ceiling debate and the S&P downgrade - projects appear to be moving forward again. However, new development projects are still limited to prime locations in major metros. Speculative development is only taking place in a handful of markets. It is clear that developers are slowly getting more comfortable with market conditions, as evidenced by the fact that private construction has risen in 4 out of the last 5 months. That said, construction still has a ways to go before it returns to pre-recession levels. Even with the current pick up, private construction remains at 10 to 15 year lows. Construction costs had been rising at a healthy clip earlier in the year, but showed signs of slowing in August.

Construction Common Labor Building Skilled Labor Materials

Source: ENR

+0.3% +0.4% +0.1% +0.2% +0.1%

Average Hourly Earnings

SA, $/hr
$24.50 $24.45 $24.40 $24.35 $24.30 $24.25 Jan- Feb- Mar- Apr- May- Jun11 11 11 11 11 11 Jul11 Aug- Sep11 11

Prices for copper, gypsum and steel all posted declines in August compared to the previous month. Labor costs rose in September following a slight decline in August. Public non-residential construction spending increased unexpectedly in August, but generally is on a declining trajectory due to statewide budget cuts a trend we expect to continue for the foreseeable future. Although August represents one positive data point, it is promising to see spending increase across the board, and there are subtle signs that conditions will continue to improve. Most notably, job creation surprised on the upside in September, equity markets have rebounded since slipping sharply in late July, and interest rates remain historically low. Thus, we expect private sector construction spending will continue on a slow, but positive trajectory.

Goods-Producing Industries

Source: Moodys

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Construction Costs Report

October 2011
Construction Costs
Producer Price Index, % chg

Construction Spending
$Billions

Aug-11 Raw Materials

Concrete Copper* Glass* Gypsum* Lumber Petroleum Steel* 0.1% -2.0% 1.8% -1.7% 1.3% -2.7% -1.0%

Jul-11
0.1% 5.0% 0.0% -0.6% 0.6% -1.6% 0.5%

Jun-11
-0.1% -1.4% 0.2% -2.8% 0.6% -3.0% -1.7%

Y/Y
Aug-11 0.0% 21.1% 3.7% -4.7% 1.5% 34.6% 14.3% Residential Lodging Ofce Commercial Manufacturing
Source: Moodys

Jul-11 $788 $509 $244 $8 $35 $46 $36

Jun-11 $800 $516 $252 $9 $35 $45 $38

Trend

Total Construction Total Private

$799 $511 $246 $8 $35 $45 $37

Labor Costs
Avg Hourly Earnings Avg Weekly Hours
* not seasonally adjusted Source: Moodys

$24.43 39.8

$24.45 39.8

$24.39 39.9

Select Market Statistics:

Const. Jobs Market Q2 11 / Q2 10 1,470 4,270 -1,830 8,160 1,230 3,180 -5,470 -1,230 -10,360 -3,360 -4,460 -3,530 -4,000 yoy % Chg 1.9% 3.5% -5.8% 5.2% 7.3% 1.9% -5.2% -3.8% -3.5% -5.1% -5.5% -4.3% -3.6% Const. Wages Avg Weekly Q4 10 $1,602 $1,076 $1,421 $1,519 $1,328 $1,251 $1,461 $1,225 $1,450 yoy % Chg -1.0% 2.6% 5.1% -2.2% -1.8% -3.2% 5.5% -3.9% 2.9% CPI yoy % Chg 3.4% 3.2% 3.8% 4.2% 4.2% 3.4% 2.4% 4.0% 3.4% 2.8% 2.4% 3.2% 4.1%

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* Employment data includes mining and lodging Source: Moodys

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