The producer price index (PPI) for finished goods climbed 1.2% in April, not seasonally adjusted (0.8%, seasonally adjusted), and 6.8% since April 2010, the Bureau of Labor Statistics (BLS) reported on Thursday. The PPI for inputs to construction industries—a blend of all materials used in every type of construction, plus items consumed by contractors such as diesel fuel—rose 1.4% and 7.1%, respectively. This sharp rise intensified the ongoing cost squeeze on contractors, as the PPIs for finished buildings—which measure contractors’ labor costs, overhead and expected profit as well as materials costs—rose much less. Specifically, the PPI for new industrial building construction went up 0.8% for the month and 1.0% over 12 months; offices, 0.8% and 1.5%; schools, 1.1% and 1.6%; and warehouses, 0.8% and 1.7%. The squeeze applied also to new and repair work by nonresidential building subcontractors: roofing, -0.6% and -0.7%; concrete, -0.1% and -0.2%; plumbing, 1.8% and 1.4%; and electrical, 0.6% and 2.2%. Commodities that contributed disproportionately to the increase in the construction PPI included items that are produced and used globally: the PPI for diesel fuel rose 5.7% in April and 42% over 12 months; copper and brass mill shapes, 2.6% and 14%; steel mill products, 2.2% and 13%; and aluminum mill shapes, 2.8% and 9.1%. PPIs for items for which U.S. construction is the major customer had smaller or negative changes: insulation materials, -0.2% for the month and 6.6% year-over-year; plastic construction products, 0.2% and 2.1%; construction machinery and equipment, -0.1% and 2.1%; asphalt paving mixtures and blocks, 1.8% and 1.6%; concrete mixtures and blocks, 0 and -0.1%; gypsum products, -4.9% and -2.1%; brick and structural clay tile, 0.2% and -2.6%; and lumber and plywood, -0.3% and -4.5%.
The steady runup in diesel and metals prices over the past several months appears to be giving way to fluctuating or even declining prices for now, based on recent movements in input prices. For instance, copper futures, which peaked at a record $4.60 per pound in early February, have oscillated around $4 per pound in the last few weeks. Prices for scrap iron, rebar and flat-rolled steel have slipped this month, according to steel-price reporting services. The Energy Information Administration stated in its latest Short-Term Energy Outlook, released on Tuesday, that it “expects that on-highway diesel fuel retail prices, which averaged $2.99 per gallon in 2010, will average $3.89 per gallon in 2011 and $3.93 per gallon in 2012, reductions of 9 cents and 14 cents per gallon respectively from last month's Outlook.” The price of “near-month” West Texas Intermediate crude oil, a major influence on diesel prices, fell from a high of $114 per barrel in April to a range around $100—a fall equivalent to more than 30 cents per gallon—in the last week. However, flooding on the Mississippi River may interfere with some refinery operations and barge deliveries, causing regional diesel shortages or price spikes.
The value of nonresidential construction starts jumped 12% in April, not seasonally adjusted, above March and 14% above April 2010 levels, although starts for the first four months of 2011 combined remained 1% below the same period in 2010, Reed Construction Data (RCD) reported on Monday, based on data it collected. “This reverses the weak starts reports in February and March,” RCD Chief Economist Jim Haughey wrote. “Adjusting for seasonality, April starts were 7% above the pace in the previous three months….Commercial starts in April jumped 37% from March. Except for a surge last August, this was the highest total since January 2008. Private office starts nearly doubled….All other commercial sectors had big double-digit gains except the miscellaneous category. Both parking garages and warehouses had huge gains after very weak March totals….Institutional starts were steady in April and are now stalled…well below the 2009-10 monthly average….Heavy project starts rebounded 5.5% from a weak March, but the year-to-date average is well below the average month in 2009-10.”
Several recent reports suggest growing demand for warehouse and distribution space. The Census Bureau reported on Thursday that manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, rose 1.0% in March from February levels and 9.7% from March 2010. Also on Thursday, Census reported that sales at nonstore retailers (mail order and Internet sales), which are typically fulfilled or shipped through large distribution or sorting centers, rose 14% in the first four months of 2011 from the same period of 2010, well above the 8.4% gain in total retail sales. “Amazon Inc. said it could build more fulfillment centers this year than the nine facilities it had already announced,” the Wall Street Journal reported on Wednesday. “They will be located in [Arizona, Indiana and] Washington. In addition, the company is expanding a customer-service center in West Virginia.” However, “Quarterly construction starts are…at all-time lows, with just 3 million square feet in the first quarter, compared with quarterly numbers ranging from 40 million to 64 million square feet through most of the last decade, according to CoStar data,” the real-estate research firm reported on May 5. “ProLogis and AMB, the two largest developers of warehouse and distribution space, have few new projects slated for the U.S., and no spec[ulative] projects. Most of the few projects moving forward are smaller buildings—virtually no big boxes—and most are built-to-suits or pre-leased….not a single significant construction project broke ground in the most recent quarter in more than half of U.S. markets. Those that led the nation in construction, including Raleigh/Durham, North Carolina, and the Inland Empire [in California], did it on the basis of one large fully leased build-to-suit project.“
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