The producer price index (PPI) for finished goods increased 0.8% in January and 3.6% over the past 12 months, the Bureau of Labor Statistics (BLS) reported on Wednesday. The PPI for inputs to construction industries—a weighted average of the cost of materials used in all types of construction, plus items consumed by contractors such as diesel fuel—rose 0.9% and 4.9%, respectively. The cost squeeze on contractors intensified as the PPIs for finished buildings and for subcontractors—meant to track bid prices—stayed nearly flat. Specifically, the PPI for new office construction rose 1.0% for the month but only 0.2% over 12 months; new industrial buildings, 0.2% and 0.6%; warehouses, 0.2% and 0.7%; and schools, 0.8% and 1.4%. The PPI for new and repair work on nonresidential buildings by roofing contractors rose 0.5% for the month but dropped 1.2% over 12 months; plumbing contractors, 0.2% and +0.5%; concrete contractors, 0.1% and 0.7%; and electrical, 0.8% and 1.6%. Among materials PPIs contributing to the large monthly and year-over-year increases were diesel fuel, 3.2% and 18%; steel mill products, 2.0% and 11.5%; copper and brass mill shapes, 3.3% and 9.9%; and aluminum mill shapes, 1.0% and 9.2%. All of these items, or the raw materials for them, are in worldwide demand. In contrast, PPIs for items consumed mainly by U.S. construction mostly rose less or fell, reflecting sluggish demand: brick and structural clay tile, -2.4% and -2.4%; architectural coatings, -0.3% and -0.3%; concrete products, 0.1% and 0: gypsum products, -3.3% and 0.5%; and asphalt paving mixtures and blocks, 0.1% and 3.3%. BLS introduced “an experimental aggregation system that includes price changes for goods, services, and construction sold to all portions of final demand and intermediate demand” (www.bls.gov/ppi). For instance: “The final-demand construction index tracks price change for new construction as well as maintenance and repair construction sold to final demand. Construction of office buildings is an example of a commodity in this index….The intermediate-demand construction index measures price change for construction purchased by firms as inputs to production….this index tracks price change for maintenance and repair construction purchased by firms.” BLS also did a routine annual reweighting of indexes (available upon request).
Numerous price increases have occurred or been announced since BLS collected prices in mid-January. However, some prices may have peaked. The Energy Information Administration (EIA) reported on Monday that the national average retail price of on-highway diesel fuel rose for the 11th week in a row, to $3.53 per gallon, up 20 cents since January 10. But the price of West Texas Intermediate crude-oil futures has declined about $7 per barrel or 16 cents per gallon since its peak in January, suggesting diesel prices may soon fall. In its February 8 Short-Term Energy Outlook, EIA forecasted an annual average price in 2011 of $3.43 for diesel, up from an average of $2.99 in 2010 but down 10 cents from the latest weekly price. Copper futures recently set a record of $4.60 per pound, up more than 50% from a year earlier, but closed on Wednesday at $4.52 per pound. Scrap-iron prices have reported retreated slightly from recent highs, although mills producing construction steel from scrap have not lowered their quoted prices. Price hikes have been announced by makers of construction plastics, insulation, truck and offroad tires, wallboard and ready-mix concrete, but it is not clear that all of these increases will take effect.
The value of nonresidential construction starts in January was 4.8% less than in January 2010 but 18% higher than in December (before seasonal adjustment), Reed Construction Data reported on Tuesday, based on data it collected. “Adjusting for seasonal variation, January starts continued their rising trend in recent months after a dip in mid-2010,” Reed Chief Economist Jim Haughey wrote. “The revised starts total for full year 2010 was…2.6% less than in 2009 as a whole….The recent rise in starts is consistent with the small gain in construction spending (i.e., after excluding the bad weather impact), higher business and consumer confidence and the improved willingness of lenders to invest in commercial real estate. Construction starts are expected to continue rising for several years.” Haughey commented that nonresidential construction in California “is faring much better than the state economy and the state budget. [In Texas,] construction continues to underperform the economy….Factory capacity utilization is not yet high enough to spur plant expansions.” However, other reports suggest industrial construction is rising. For instance, BreakingNews, an e-newsletter covering construction in western Pennsylvania (jburd@talltimbergroup.com), reported on Wednesday, “AK Steel and USSteel each have major improvements under construction. Allegheny Ludlum is preparing to start its $1.2 billion mill. Horseheads Corp. announced that its Monaca facility was one of the potential sites for its new zinc manufacturing plant. Latrobe Specialty Steel is narrowing choices for a site for a 75,000 square-foot titanium plant.”
Industrial production (IP) in manufacturing climbed 0.3% in January, seasonally adjusted, following an upwardly revised 0.9% gain in December (initially estimated as 0.4%), the Federal Reserve reported today. IP for construction supplies slipped 0.2% after being unchanged in December. Capacity utilization in manufacturing rose to 73.7% of capacity from 73.5% (initially estimated as 73.2%) but was still well below the 1972-2010 average of 79.1%.
Multifamily construction, at least for market-rate rental housing, appears to be waking from a long slumber. Monthly data is subject to wide swings and revisions, but even on a three-month basis, Census Bureau data released on Wednesday show starts in November-January soared 83% from the prior three months and 87% from a year earlier.
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