The producer price index for inputs to construction industries - a weighted average of the price of all goods used in every type of construction, plus items consumed by contractors, such as diesel fuel - was flat for September but up 8.1 percent over the September 2010 level.

The producer price index for finished goods increased 0.5 percent, not seasonally adjusted (0.8 percent, seasonally adjusted) in September and 6.9 percent over 12 months, the Bureau of Labor Statistics reported Oct. 18. The PPI for inputs to construction industries - a weighted average of the price of all goods used in every type of construction, plus items consumed by contractors, such as diesel fuel - was flat for the month but up 8.1 percent over the September 2010 level.

The steep year-over-year increase added to the price squeeze on contractors, as indexes for finished buildings - which reflect contractors’ estimates of what they would charge to put up new buildings - rose much less. The PPI for new industrial building construction inched up 0.1 percent for the month and 2.2 percent over 12 months; offices, -0.1 percent and 2.6 percent; warehouses, 0 and 2.8 percent; and schools, -0.1 percent and 3.0 percent.

Similarly, PPIs for subcontractors’ new, repair and maintenance work rose modestly or slipped: concrete contractors, 0 and -0.2 percent; plumbing contractors, -0.1 percent and 2.5 percent; roofing contractors, 0 and 3.1 percent; and electrical contractors, -0.1 percent and 3.6 percent.

Items that contributed to the large year-over-year increase in materials costs included diesel fuel, up 3.3 percent for the month and 39 percent over 12 months; copper and brass mill shapes, down 0.7 percent in September but up 15 percent since a year earlier; steel mill products, -0.6 percent and 13.5 percent, respectively; and aluminum mill shapes, -1.8 percent and 10 percent. These are products in which demand from other industries and countries may drive prices up even when construction demand is weak.

In contrast, PPIs for items that are produced locally and used mainly by U.S. construction have stayed flat or declined: concrete products, up 0.2 percent for the month and 0.3 percent over 12 months; lumber and plywood, -1.3 percent and -0.4 percent; brick and structural clay tile, -0.4 percent and -3.2 percent; and gypsum products, -1.7 percent and -4.6 percent.

Highway contractors may be feeling an even tighter cost pinch than building contractors. The National Highway Construction Cost Index - an average of accepted bids on state highway projects, adjusted for mix of project types - was steady in the first quarter of 2011 but down 2 percent from a year earlier and down 22 percent from its most recent peak in September 2008, the Federal Highway Administration reported Oct. 18.

Nonresidential Construction Starts Tumble

The value of nonresidential construction starts tumbled 20 percent in September, not seasonally adjusted, reversing a 19 percent jump in August, Reed Construction Data reported Oct. 13, based on data it collected. For the first nine months of 2011 combined, starts were 9.8 percent higher than year-to-date in 2010.

“Commercial starts plummeted” 37 percent in September, Reed Chief Economist Bernard Markstein said. “However, the year-to-date numbers were still up a healthy 13 percent from a year ago. Meanwhile, industrial building starts continued to be a bright spot, posting a robust gain of 25 percent for the month and a year-to-date figure double the number for the same period a year earlier.

“Institutional building starts took a hit, falling 21 percent in September even as the year-to-date numbers were up 11.5 percent...Medical facilities, despite sinking 46 percent for the month, were up 30 percent year-to-date. Heavy engineering (nonbuilding) starts fell a relatively modest 10 percent in September” but rose 4.4 percent year-to-date.

Multifamily Housing Starts Soar

Housing starts soared 15 percent, seasonally adjusted in September, and were 10 percent higher than in September 2010, the Census Bureau reported Oct. 19. Multifamily starts accounted for all of the gain, leaping 51 percent for the month and 55 percent year-over-year. Single-unit starts rose 1.7 percent for the month but fell 4.9 percent from a year earlier. Building permits fell 5 percent for the month but rose 5.7 percent year-over-year.

Permits for multifamily structures, which tend to be volatile from month to month, sank 14 percent in September but were still 11 percent higher than a year before. Single-unit permits, which are a more reliable indicator of near-term homebuilding, dipped 0.2 percent for the month but were up 3.5 percent year-over-year.

Modest Gains In Economic Activity

“Reports from the 12 Federal Reserve districts indicate that overall economic activity continued to expand in September, although many districts described the pace of growth as ‘modest’ or ‘slight’ and contacts generally noted weaker or less certain outlooks for business conditions,” the Fed reported Oct. 19 in the latest “Beige Book,” a summary of informal soundings in each district conducted through Oct. 7. The districts are referenced by the name of their headquarters cities.

“All 12 districts reported that real estate and construction activity was little changed on balance from the prior report. Residential construction remained at low levels, particularly for single-family homes. That said, Philadelphia, Cleveland, and Minneapolis noted small increases in single-family construction, and construction of multifamily dwellings continued to increase at a moderate pace in Boston, Philadelphia, Cleveland, Kansas City, Dallas, and San Francisco.

“Home sales remained weak overall, and home prices were reported to be either flat or declining across all of the districts. In contrast, rental demand continued to rise in a number of districts. Commercial real estate conditions remained weak overall, although commercial construction increased at a slow pace in most districts. Boston, Philadelphia, St. Louis and Cleveland cited some gains in demand for construction of education, healthcare, and institutional-related buildings, and New York reported an increase in hotel development. Furthermore, Philadelphia, Cleveland and Chicago noted an increase in demand for manufacturing and distribution facilities.

“Vacancy rates remained elevated, but Boston, Atlanta, Chicago, Minneapolis and Dallas reported an increase in leasing activity and Philadelphia and San Francisco indicated rising investor interest in well-leased office space.”