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Producer Price Index For Construction Outstrips Rise In Overall Index

August 26, 2008
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McGraw-Hill reports higher starts.

The producer price index (PPI) for finished goods climbed 1.4% before seasonal adjustment (1.2% seasonally adjusted) in July and 9.8% over 12 months, the Bureau of Labor Statistics reported on Tuesday.

The PPI for inputs to construction industries - a measure of costs of materials used in all types of projects plus items consumed by contractors, such as diesel fuel - rose 2% for the month and 12% over 12 months. By segment, the increases were greatest for highway and street construction, 3.8% and 21%; followed by other heavy construction, 2.1% and 17%; nonresidential building, 1.9% and 12%; multi-unit residential, 1.3% and 8.5%; and single-unit residential, 1.4% and 7.1%. The disparities are traceable to different mixes of materials and their widely varying price increases.

The PPI for asphalt paving mixtures and blocks soared 14% in July and 34% over 12 months; diesel fuel, 2.7% and 78%; steel mill products, 1.7% and 33%; and plastic construction products, 1.8% and 4.5%.

The PPI for copper and brass mill shapes rose 2.8% in July but fell 0.5% over 12 months; gypsum products, 1.3% and -6.1%; lumber and plywood, -2.2% and -5.9%. BLS introduced new PPIs “measuring the changes in output prices received by four groups of construction trade contractors performing poured concrete, roofing, electrical, and plumbing/HVAC work on nonresidential buildings.” These indexes complement PPIs introduced in the past three years for new industrial, warehouse, school and office building construction.

BLS asks for prices as of the 13th of the month. Since July 13, there have been wide swings in some commodities prices. In the past two weeks, Data DIGest readers have sent letters announcing increases in gypsum, building insulation and asphalt prices effective Aug. 15-Sept. 1. However, no readers have reported recent increases in steel prices, and asphalt price increases are less widespread than in June or July, possibly reflecting the steep decline in crude oil prices.

The Energy Information Administration reported this evening that the national average retail price of on-highway diesel fuel fell for the sixth straight week, by six cents per gallon to $4.14, down 13% from the record of $4.76 set on July 14 but up 45% from a year ago.

“The value of new construction starts advanced 6% in July,” seasonally adjusted, McGraw-Hill Construction reported on Wednesday, based on data it collected. “Led by the start of two massive electric power plants plus healthy gains for several public works categories, the nonbuilding construction sector climbed sharply. In addition, residential building edged upward, reflecting some strengthening for multifamily projects that offset further weakness for single-family housing. On the negative side, nonresidential building continued to settle back, as groundbreaking for manufacturing plants subsided from the heightened activity witnessed earlier in the year. For the first seven months of 2008, total construction on an unadjusted basis [fell] 14% from a year ago. Excluding residential building, new construction starts in the first seven months of 2008 were up 4%.”

“Between June 2008 and July 2008 nonfarm payroll employment increased in 14 states and the District of Columbia, and decreased in 36 states,” BLS reported on Friday. Compared to July 2007, employment increased in 29 states and D.C., and decreased in 21 states.  The largest over-the-year percentage gains in employment were in Texas, 2.4%; D.C., 2.3%; and Wyoming, 2.2%. The largest percentage declines were in Rhode Island, -2.6%; Arizona, -15%; Florida, -1.2%; and Michigan, -1.1%.

Construction employment rose from June to July in only nine states, fell in 33 plus D.C., and was unchanged (or within 100 of the prior level) in nine. Compared to July 2007, construction employment climbed in 11 states, fell in 33, and was roughly level in five plus D.C. The largest over-the-year percentage increases in construction employment were in Wyoming, 9%; Oklahoma, 5%; Texas and Louisiana, 4% each; and South Dakota, 3%. The largest percentage drops were in Arizona, -15%; Florida, -13%; Utah and South Carolina, -12% each; and Nevada, -10%.

“About 80% of domestic banks - a fraction similar to that in the April survey - reported having tightened their lending standards on commercial real estate loans over the past three months,” the Federal Reserve reported on August 11. The report was based on a survey of senior loan officers at 52 U.S. banks and 21 foreign banking institutions with U.S. subsidiaries. “About 35% of foreign banks - down from roughly 55% in the April survey - also indicated that they had tightened their lending standards on commercial real estate loans. Regarding demand for these types of loans, about 30% of domestic banks and 45% of foreign institutions - fractions somewhat smaller than those in the April survey - reported weaker demand for commercial real estate loans over the survey period on net.”

“Manufacturing output gained 0.4% in July and was boosted by a rise of 3.6% in the production of motor vehicles and parts,” the Fed reported on July 15 in its monthly industrial production release. “Excluding motor vehicles and parts, the index for manufacturing increased 0.2%.” Capacity utilization in manufacturing edged up to 77.7% of capacity from 77.6% in June and May. Over time, increases in current output and capacity utilization can indicate demand for new factory construction. “The production of construction supplies increased 0.3%. On net, the output of construction supplies advanced over the past three months; its average monthly decrease over the preceding nine months had been about 0.7%.”

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