Capital Update 2/20/2023
The Producer Price Index for final demand increased 0.7 percent in January. Prices for final demand goods advanced 1.2 percent, and index for final demand services moved up 0.4 percent. Prices for final demand rose 6.0 percent for the 12 months ended January 2023.
In January, the Consumer Price Index for All Urban Consumers increased 0.5 percent, seasonally adjusted, and rose 6.4 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.4 percent in January (SA); up 5.6 percent over the year (NSA).
The latest data is causing some economists to rethink their growth expectations for 2023, with strong jobs numbers and other factors appearing to diminish the chance of a recession. However, a robust labor market could also make it more difficult for the Federal Reserve to accomplish its mission of taming inflation, which could lead policymakers to take more aggressive action. Full Story: The New York Times BNN Bloomberg (Canada)
Federal Reserve Governor Michelle Bowman has indicated more interest-rate increases are needed to balance supply and demand and ultimately lower inflation toward the central bank’s goal. “I expect we’ll continue to increase the federal funds rate because we have to bring inflation back down to our 2% goal and in order to do that we need to bring demand and supply into better balance,” Bowman says. Full Story: Reuters
Material prices back on the rise
After recording their biggest drop in over two years, overall construction and nonresidential input prices whipsawed upwards again in January, increasing 1.3% and 1.1% respectively, according to an Associated Builders and Contractors report. Both categories are 4.9% higher than a year ago. The jump in overall construction input prices reflected the smallest annual increase since January 2021, according to the report, but stymied progress made in December, when prices plunged 2.7%, the largest drop since April 2020. “Recent employment and retail sales reports indicate that the economy is not slowing nearly as quickly as predicted. That is the good news,” said Anirban Basu, ABC chief economist. “The bad news is that the economy remains overheated, a phenomenon neatly reflected in the January PPI data, which indicated that construction input price gains accelerated on a monthly basis.”
Some US cities monitored by Mortenson’s Construction Cost Index saw modest cost declines in the latest quarter, and overall the index registered a 0.2% gain. For the year, costs were up 6.7%, but Mortenson concludes that “[t]he overall outlook for nonresidential construction remains positive, despite persistent challenges and uncertainty regarding the overall economy.” Full Story: Construction Dive (2/13)
Despite challenging conditions, the US accounted for more than 40% of the $5.38 billion invested globally in construction technology last year, down only a bit from the $5.4 billion in 2021, according to a report by Cemex Ventures. Looking ahead, Cemex predicts steady investment in the sector this year as economic uncertainties ease. Full Story: Construction Dive
Prices for construction materials are expected to rise in 2023 as the construction industry deals with high input costs, inflation, increased interest rates and supply chain snags, according to a report by Linesight, but there are some positive predictions as well. “On the bright side, investments by the government in housing, transportation and manufacturing through 2026 should stimulate growth at an average annual rate of 3.7%,” said Patrick Ryan, executive vice president for the Americas at Linesight.
Full Story: For Construction Pros
Civil contractors and engineers cite challenges on a number of fronts but remain optimistic for the future, according to Dodge Construction Network’s Civil Quarterly 2023 Issue 1 report. The report covers topics including trends in building information modeling and, for the first time, the subject of mental health, with respondents more willing to discuss a matter of lasting concern in the industry. Full Story: Construction Dive
Husband of California Labor Federation Head Lorena Gonzalez Fletcher Will Run for State Senate.
He plans to run for the seat now held by Senate Pro-Tem Toni Atkins, who will term out of office in 2024. The former State Assemblyman has been on the Board of Supervisors since 2018. He has collected more than $1 million since he opened a campaign committee several months ago, and he has endorsements from San Diego Mayor Todd Gloria, former state Sen. Christine Kehoe, Lemon Grove Mayor Racquel Vasquez, and San Diego City Council President Sean Elo-Rivera. Story
The fact that many state budgets are in surplus suggests that the $350 billion in federal direct aid under the American Rescue Plan is working by stimulating economic activity and tax revenues, says Gene Sperling, who is managing disbursal of the funds for the Biden administration. Sperling says the decision to opt for direct payments drew on experience from the slow recovery after the Great Recession, when “[w]e saw then what it meant when there weren’t enough resources for [counties].” Full Story: Route Fifty
A wider variety of construction materials covered under Buy America provisions in the bipartisan infrastructure law may be mandated under new guidance issued by the Office of Management and Budget. However, construction and transportation officials are raising questions, as the guidance “continues to create uncertainty as it relates to new Buy America requirements and at a time when most of the country will soon be entering construction season,” says Brian Turmail, spokesperson for the Associated General Contractors of America. Full Story: Engineering News-Record (tiered subscription model)
After two months of decline at the end of 2022, US retail sales rose 3% in January, marking the largest increase since March 2021, according to the Commerce Department. Retail sales exhibited growth in many sectors of the economy, including at restaurants, department stores and appliance sellers. Full Story: CNBC The Wall Street Journal
Granite reports higher profits but stumbles on accounting again
Watsonville, California-based general contractor Granite Construction reported net income of $22.1 million for the fourth quarter, compared to a $13.2 million loss 12 months earlier, but also acknowledged an accounting oversight that will force it to restate its previous financial results for the second time since 2021. For the full year ended Dec. 31, 2022, the company had $83.3 million in profits, an eight-fold increase from the $10.1 million it reported in 2021. Granite pegged its improved net income to its focus on smaller, higher profit projects and the unleashing of cash from the Infrastructure Investment and Jobs Act. Overall revenue was down for the quarter and year at $789.2 million and $3.3 billion, respectively, marking drops of 2% and 5.7%.
Stantec will lead design and engineering work on a $25 billion inland freight facility east of Los Angeles under contract with developer Highland Fairview. Construction is expected to begin this year on the hub, which will span 4 square miles offering 40.6 million square feet of warehousing. Full Story: Engineering News-Record (tiered subscription model)
A new Legislative Analyst Office report on needed construction at the 23-campus California State University system concludes that $3.1 billion will be required over the next 10 years, on top of the existing $6.5 billion backlog of regular maintenance. Meanwhile, the separate University of California system requires $12 billion in new work, in addition to a $7.3 billion backlog. Full Story: EdSource
Google remains committed to its planned office development in downtown San Jose, Calif., but is now reassessing its timing, according to Mayor Matt Mahan. Google, which recently carried out layoffs, is taking into account an uncertain economy as it weighs whether to proceed as planned or delay construction, Mahan says. Full Story: KPIX-TV (San Francisco)
Sacramento, Calif., $1.3B Airport Expansion Detailed
Officials in Sacramento, Calif., unveiled plans for a $1.3-billion expansion of Sacramento International Airport that they plan to begin construction on next year. The Sacramento County Dept. of Airports detailed the plans dubbed “SMForward” on Feb. 1. The expansion will be split into six projects to be built through 2027. These include the construction of a $391-million rental car facility, a $140-million pedestrian walkway connecting Terminal B to Concourse B, $380-million Terminal B parking garage, additional gates and amenities at Terminal A and Concourse B and other improvements for connecting to ground transportation. Story
A dam deemed a high-risk safety hazard in California’s Tennessee Valley will be removed under a National Park Service plan now approved by the California Coastal Commission. The move also will restore a natural wetland eliminated when the earthen dam was built in the 1960s to attract water fowl. Full Story: Marin Independent Journal (San Rafael, Calif.)