Construction material costs continue to rise
Producer Price Index (PPI) data released May 20 by the Bureau of Labor Statistics showed the combined price of construction inputs rose 6.5 percent in April 2008 compared to April 2007 and climbed 1.2 percent in April 2008 over March 2007. Construction inputs include materials such as cement, lumber, steel and diesel fuel.

According to ABC Chief Economist Anirban Basu, although construction inflation is less dramatic than during the 2004–2005 period when the overall 12-month construction PPI routinely approached 10 percent, the increase in construction inputs is still uncomfortably rapid.

“The commercial and industrial construction industry should be more than a little nervous,” said Basu. “For instance, relentless increases in the price of steel are causing project cancellations across the globe. Steel prices internationally are up 40 to 50 percent since December and some industry executives believe that they have yet to achieve their peak. In addition, purchasing agents are under constant pressure to buy now or pay more later.”

Crude energy materials PPI rose 4.1 percent in April 2008 compared to March 2008 and climbed 51.9 percent compared to April 2007. Intermediate energy goods rose 25.4 percent and finished goods rose 17.5 percent since April 2007.

“Massive increases in the prices of copper, nickel, stainless steel and concrete have made it even more difficult for America to construct new nuclear and coal-powered power plants,” Basu noted. “The inability to add additional energy capacity in a timely fashion means that energy prices will remain higher than they otherwise would have been.

“As long as the dollar remains weak and the supply of critical inputs remains at risk in key supplier nations, prices will continue to remain elevated. The extent to which these producer price increases will slow the pace of nonresidential construction remains to be seen.”

To read the report, click here.

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Expect further volatility in reinforcing steel bar prices
The American Metal Market (AMM) magazine recently announced additional increases in published prices for stock length reinforcing steel bar, commonly known as rebar. According to AMM published data, effective June 1, stock length rebar prices will have risen by $297 since January 1, 2008. This continues a trend in price increases for rebar that began in late 2003.

Because of the volatility in the prices of raw materials, many suppliers of reinforcing steel and other steel construction products may have difficulty providing fixed cost bids, particularly for projects of any considerable length of time.

For projects already under contract, the rapid increase in reinforcing steel prices may leave some fabricators and suppliers with fixed price contracts unable to be fulfilled without severe financial consequences. It is the considered opinion of the Concrete Reinforcing Steel Institute (CRSI) that the extremely rapid, unprecedented and unexpected increase in the prices of reinforcing steel bar and other construction steel products is due to global and domestic economic conditions beyond the control of reinforcing steel fabricators and suppliers. This situation could likely create turmoil in the fabrication industry, resulting in potential service issues to the construction community.

For additional information, contact Darren Szrom at (847) 517-1200 ext. 36 or via e-mail at dszrom@crsi.org.

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CSI hosts first young professionals event
The Construction Specifications Institute (CSI) has created a new group to support young professionals in the design and construction industry. CSI's Emerging Professionals group will provide recent college graduates and new professionals with networking, mentoring and leadership development opportunities.

"This segment of the industry largely has been overlooked in the past," says Walter Marlowe, CSI executive director and CEO. "We are reaching out to young professionals to help them connect with their colleagues, discuss issues and explore how CSI can help them advance in their careers."

In March, CSI assembled an advisory task team of professionals to guide the development of the Emerging Professionals group.

"Often, young professionals do not have the flexibility to travel, take time off work or get their employers to pay for conference expenses," said Marlowe. "This group will look for creative ways to get them involved in the industry and CSI."

The new group will provide benefits to young professionals as well as CSI's long-time members. "Mentors often provide guidance in developing skills and gaining technical knowledge," added Marlowe. "At the same time, these young professionals will be able to teach their mentors and others about current technologies and how to integrate them into practical applications."

The group's first event is scheduled for Wednesday, June 4, 2008, from 5:00 p.m. to 5:30 p.m. during the CSI Annual Convention in Las Vegas. This "meet-and-greet" will take place at the CSI Leader Lounge. Register now for CONSTRUCT2008 & the CSI Annual Convention at www.constructshow.com.

To help support this new group, CSI recently created an online forum for users to discuss issues and share ideas. The Emerging Professionals forum is accessible at www.csinet.org/forums.

If you are interested in getting involved in the Emerging Professionals Group, or know someone who would be, please contact Caroline Warren, CSI's Manager of Membership and Chapter Relations, at cwarren@csinet.org or 703-706-4726.

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Equipment Leasing and Finance Association offers equipment finance expertise for end users
The Equipment Leasing and Finance Association (ELFA) recently launched an informational website, Equipment Finance 101 offering comprehensive resources for end users of equipment finance products and services that comprise the $600 billion equipment finance sector.

“The equipment finance industry has always been characterized by its entrepreneurial nature and responsiveness to the needs of its customers,” said Kenneth E. Bentsen, Jr., ELFA President. “Equipment Finance 101 seeks to provide resources and financial information to end-users that is especially important during the downturn in the economy and current credit tightening which naturally puts increased pressure on making financial decisions,” said Bentsen.

Information available at Equipment Finance 101 includes:
    • types of finance products
    • a loan/lease comparison
    • a glossary of terms
    • an analysis to help determine suitable
      financing options
    • act sheets on industry sectors including
      transportation, medical, construction energy
      and others, and
    • topical bylined articles, such as “Ten Tips
      for Strategic Equipment Finance”
      (available for reprint, free of charge)

About Equipment Finance 101
Equipment Finance 101 is hosted and produced by the Equipment Leasing and Finance Association with the assistance of David G. Mayer, a Business Transaction Partner and equipment finance expert at Patton Boggs LLP whose practice primarily includes the areas of equipment finance, project finance, aviation finance and other asset-based transactions. Mayer is also the author of Business Leasing For Dummies and produces the monthly Business Leasing and Finance News which has subscribers in 35 countries.

For more information, please visit www.elfaonline.org.

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CSI now offers free AudioCast focused on Building Information Modeling
The Construction Specifications Institute (CSI) today announced that it is launching an AudioCast series focusing on Building Information Modeling (BIM). CSI is producing the “bimWits” series in conjunction with the buildingSMART alliance and the programs will draw on the knowledge and “wits” of experts working with BIM.

“BIM is an evolving technology that often is vaguely defined and little understood throughout the industry,” CSI Executive Director/CEO Walter T. Marlowe P.E., CSI, CAE, said. “CSI’s new AudioCast series will feature national and international experts who will clearly explain to average practitioners how BIM affects the way they do their jobs.”

The free series, available to the public, will be posted to audio.csinet.org on the first and third Mondays of every month. Each episode will address BIM best practices and will generally run between three and eight minutes.

Today’s debut episode features an interview with Deke Smith, Executive Director of the buildingSMART Alliance.

“BIM is blurring the traditional lines among architecture, engineering and construction disciplines, creating a new view of the built environment and its participants,” Marlowe said. “This series will help every segment of the industry gain better insight into BIM, including architects, CAD operators, product manufacturers and others.”

The bimWITS AudioCasts will be available online on http://www.contractortoolsandsupplies.com, www.greenconstructionpurchasing.com, audio.csinet.org, the buildingSMART alliance Web site (www.buildingsmartalliance.org) and iTunes.

You don’t need an iPod to hear CSI’s AudioCast – you can listen online through your computer. You can also add the CSI AudioCast to your Web site – look for directions at audio.csinet.org.

CSI began offering its AudioCasts in early 2007. The online audio programs feature news, educational topics, interviews and best practices for the design and construction industries. Since that time, nearly 120,000 CSI AudioCast episodes have been downloaded. “CSI is dedicated to creating products and programs that help improve the project delivery process,” Marlowe said. “This new series expands CSI’s valuable AudioCast library by responding to the industry’s needs.”

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Nonresidential construction spending continues on strong, but flattening path
Despite ongoing travails within the residential construction industry, nonresidential construction spending has risen nearly 12 percent over the past year and was up 1.3 percent in March, according to the May 1 U.S. Department of Commerce construction spending report and recently reported by the Associated Builders and Contractors (ABC). The estimates were determined on a monthly, seasonally adjusted basis.

Of the16 reported nonresidential sectors, 14 produced year-over-year spending gains, with the largest growth in office (39.6 percent), manufacturing (30.8 percent) and public safety (26.7 percent).

As was the case last month, two nonresidential segments experienced lower construction spending activity over the past 12 months. These were religious construction (down 15 percent) and water supply construction (down 9.8 percent). On a monthly basis, 12 of 16 nonresidential sub-sectors reported increased spending.

Total construction spending, both nonresidential and residential, was $1.124 trillion in March on a seasonally adjusted, annualized basis. This represents a 1.1 percent decline from a month earlier and a 3.4 percent fall from March 2007.

As has been the case in recent months, the decline in construction spending is explained more than fully by America's faltering residential sector, in which spending declined 19.7 percent over the past 12 months.

According to ABC, the long-predicted decline in nonresidential construction has yet to occur with the sector still maintaining a degree of momentum. That said, nonresidential construction spending growth has flattened considerably in recent months, and if credit market issues continue to roil the broader economy and the broader economy continues to weaken, the industry will likely have to deal with stagnant revenues or worse over the next quarter and beyond.

Given the increasingly difficult lending environment in conjunction with an economy that has been expanding at less than a one percent rate, ABC predicts that the peak of the nonresidential construction spending cycle is approaching and that future data will likely reflect lower nonresidential construction spending heading to the year's end.

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Nonresidential investment declines sharply in Q1 2008 GDP numbers
Nonresidential fixed investment declined 2.5 percent in the first quarter of 2008, compared to a 6 percent increase in the previous quarter, according to the April 30 U.S. Commerce Departments quarterly report on the nations gross domestic product (GDP) and recently reported by the Associated Builders and Contractors (ABC).

This is the largest quarterly decline since the beginning of 2004 when nonresidential fixed investment dipped 2.6 percent. In addition, residential fixed investment experienced a staggering 26.7 percent decrease, subtracting 1.2 percentage points from first quarter GDP growth. Personal consumption grew a modest one percent, the slowest quarterly performance since the second quarter of 2001. The two brightest spots in the report were inventories, which were positive for growth in the first quarter after being significantly negative during the fourth quarter of 2007, and exports, which were up 5.5 percent on an annualized basis.

Overall, real GDP increased an annualized 0.6 percent in the first quarter of 2008 from the previous quarter. Although GDP growth for the past two quarters has been weak, the 0.6 percent increase in the first quarter was better than the 0.2 percent consensus expectation. Indeed, as weak as the economy has been recently, it has yet to register a negative growth quarter. The last time GDP shrank was in the third quarter of 2001.

What This Means
According to Associated Builders and Contractors, the first quarter GDP release does little to resolve the question of whether the U.S. economy is now in recession or not, especially because these numbers are subject to revision. For those in the commercial and industrial construction industry, the debate on whether the country is in a recession is of little consequence, but what does matter is that the economy is no longer as supportive to commercial and industrial construction activities as it was during prior quarters. The credit crunch that began last summer appears to have slowed the pace of project starts significantly, and other indicators, such as the architectural billings index, support the notion that commercial and industrial construction’s near-term prospects remain dimmer than they have been in years.

However, the credit crunch appears to be ending, which could bolster the industry’s fortunes as 2009 nears, although the broader economy still needs to recover from its current malaise.

A combination of fiscal and monetary stimuli may prove to be enough to accomplish that over the next two quarters. The quarter-point rate cut today by the Federal Open Market Committee, which reduced the federal funds rate from 2.25 percent to 2 percent, is yet another indication of the concern regarding near-term economic prospects. The federal funds rate is now at its lowest level since late 2004, report ABC sources.

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