Economic Indicator Highest Since February 2023

An important construction-industry economic indicator is trending up, registering its highest reading since February 2023. The Services PMI for September came in at 54.9 percent, which is 3.4 percentage points higher than August's 51.5 percent.

The Services Institute for Supply Management (ISM) Report on Business, issued by the Institute for Supply Chain Management (ISM), measures economic growth and sentiment based upon surveys with industry executives in the services sector, which includes construction. A reading higher than 49 means the economy is expanding. 

“The increase in the Services PMI in September was driven by boosts of more than 6 percentage points for both the Business Activity and New Orders indexes. The Employment and Supplier Deliveries indexes had mixed results, with a 2.1-percent decrease and 2.5-percent increase, respectively," said Steve Miller, chair of ISM Services Business Survey Committee. “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for September (54.9 percent) corresponds to a 1.9-percentage point increase in real gross domestic product (GDP) on an annualized basis.”

One survey response from a construction executive said this about the economy, "Housing construction continues to struggle with high interest rates. While the recent half-point cut is encouraging, it may take another 150 basis points to move the needle in sales. Labor and heating, ventilation and air conditioning (HVAC) regulations continue to be a drag on construction last month.” 

An executive from the wholesale trade sector said what's on many people's minds, "Sales have slowed a bit, with customers possibly holding back on new projects and awaiting the outcome of the presidential election.”

According to the report: The stronger growth indicated by the index data was generally supported by panelists’ comments; however, concerns over political uncertainty are more prevalent than last month. Pricing of supplies remains an issue with supply chains continuing to stabilize; one respondent voiced concern over potential port labor issues. The interest-rate cut was welcomed; however, labor costs and availability continue to be a concern across most industries.”

The data was collected before the port labor strike began and before Hurricane Helene hit the East Coast. 

U.S. Bureau of Labor Statistics, Producer Price Index by Commodity: Special Indexes: Construction Materials [WPUSI012011], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WPUSI012011, October 3, 2024.U.S. Bureau of Labor Statistics

Materials Pricing

While fuel, lumber and steel products have gone down in price, other commodities, such as lumber and HVAC equipment have increased in cost, according to the report. According to the U.S. Bureau of Labor Statistics' (BLS) September Producer Price Index, prices for natural gas to electric utilities, cold rolled steel sheet and strip, and lubricating oil base stocks fell. Conversely, the index for fabricated steel plate jumped 16.8 percent. Prices for diesel fuel, basic organic chemicals, and paperboard also increased. According to BLS' focused look at construction industry pricing, the index was down to 324.731 for August. The high in recent years was 353.015 in May 2022. 

Overall Improvements 

The construction industry saw an increase in business activity, labor and new orders. The industry also experienced faster supplier deliveries for the month. Construction has also seen an increased backlogs.

ISM