A Penny for Your Thoughts

Recapping a couple of highlights from the past week – Employment and Copper.

Employment

On Friday the Bureau of Labor Statistics (BLS) released the March Employment Situation with a couple of key takeaways:

• Nonfarm payroll employment added 303,000 jobs in March (versus the adjusted February total of 270,000).
• Construction added 39,000 jobs, nearly double the average monthly increase of 19,000 over the last year.
• Unemployment dipped to 3.8% from 3.9% officially (yet when you take the numbers out another decimal place the decline in nominal – 3.86% in February to 3.83% in March).
• Average hourly earnings for the private sector marked a 4.23% increase year-over-year (y-y).
• Average hours worked moved up by 0.1 hours worked per week.

After 39 straight months of adding jobs to the workforce the unemployment rate has held steady for the last two years. The BLS Job Openings and Labor Turnover (JOLTS) data shows that openings, hires, and separations also held steady of late despite openings (8.8M) being down from the peak of 12.2M in March of 2022.

Of the 39,000 construction jobs added: residential added14,400 jobs; heavy civil 6,000 jobs; and nonresidential 18,600 jobs.

The average hourly earnings for all private sectors has started to settle down to 4.23% y-y with construction craft labor posting a 4.89% y-y. The peak for craft labor was 6.76% y-y in May of 2023 which continues to speak to the strength of the construction market and lack of available labor (all private sector was 5.17% y-y over the same period). The “construction premium” for average wages over other private sector employment is 18.1%. The average premium from 2000 to 2019 was 21.5%. While the premium is attractive, it still isn’t attractive enough to draw new workers to the trades.

What does this all mean?

Employment continues to remain strong in the face of sustained high interest rates. Unemployment remains low, defying the expectations of the Fed, but remains close to the target of 4%. Residential construction is rebounding on the expectation of rate cuts. The unprecedented wage growth of the last few years has slowed but remains sticky and will continue trend downward slowly to “right-size” wages as the available labor pool grows and competition for workers declines. 

Copper

For the week ending April 5, 2024 copper ticked up 5.71% week-over-week (w-w) reaching the highest level in the last 14 months. Copper is also up 8.85% month over month (m-m), 11.30% in the last quarter, and 5.49% y-y. Immediate increases of 4% were announced for copper tube and piping products from various plumbing material suppliers.

The impending rate cuts by the Federal Reserve and a more optimistic feeling about global manufacturing growth are hinting at an increase in demand both domestically and globally.

Supply concerns are bolstered by the Congo’s Ivanhoe Mines, which reported a 6.5% quarterly drop in output and drought conditions in Zambia pausing the country’s major planned expansion of output.

In Central and South America, several supply risks remain. The Las Bambas mine in Peru that accounts for about 2% of global copper supply has been facing setbacks with the local community over plans to increase operations. The First Quantum Cobre Panama mine, which represents 1% of global copper production) remains closed by the government after environmental protests. Codelco in Chile, the world’s biggest producer is struggling to bounce back from its lowest output levels in 25 years after collapses, construction mistakes, and accidents.

Global copper inventories as reported by the London Metal Exchange (LME) have been declining since 3Q23 which are exacerbating supply risks and concerns.

These disruptions at major mines have driven the cost upward for smelters. Chinese plants which produce more than half of the world’s refined copper are looking to reduce output in response to the increased cost and processing fees falling near zero based on the poor economic conditions in China as they fight deflation.

What does this all mean?

Demand is returning for copper with electrification, decarbonization, the anticipated cut in interest rates and the resilience of the construction market in the US. Copper pricing will continue to remain volatile in the short term as a deficit in supply is forecast for this year. Many forecasts see pricing having spikes, but largely settling up another 15% - 20% by the end of the year if current demand is actualized. Pricing for copper products such as pipe and wire will fluctuate with little notice. Consider increasing project contingencies or qualifying bid pricing based on a benchmarked market value.