The producer price index (PPI) for inputs to construction industries—a weighted average of the cost of materials used in every type of construction, plus items consumed by contractors such as diesel fuel—climbed 0.9% in December, not seasonally adjusted, and 5.4% compared with December 2009, the Bureau of Labor Statistics reported on Thursday. It was the steepest December-to-December increase since 2005.
Construction costs outstripped the PPI for finished goods, which rose 0.6% in December and 4.0% in 2010. Prices soared at double-digit rates over the year for four key inputs. Prices climbed 2.3% in December and 28% in 2010 for diesel fuel, 0.5% and 12.5% respectively for steel mill products, 1.3% and 12% for copper and brass mill shapes, and 12% over the year for aluminum mill shapes, despite a 0.2% dip in December. Other items that contributed to the December rise, but less or not at all to the year-over-year gain, included lumber and plywood, 1.5% and 5.7% respectively; architectural coatings, primarily paint, 1.5% and 0; brick and structural clay tile, 1.0% and 0.6%; and gypsum products, 0.8% and 3.4%. Prices in December and the year were little changed for asphalt paving mixtures and blocks, 0.2% and 4.6%; concrete products, 0.2% and -0.2%; and insulation materials, -0.5% and 4.4%. Meanwhile, lack of work and strong competition have forced contractors to hold the line on bid prices. The PPI for new office construction dropped 0.8% in the month and year. The index for new industrial buildings was flat in December and up 0.4% in 2010 as a whole; new warehouses, up 0.1% and 0.4%; and new schools, flat and up 1.3%. The PPI for nonresidential new and repair work by roofing contractors was flat and down 2.1%; concrete contractors, 0 and 0.5%; electrical, 0.1% and 0.9%; and plumbing, 0 and 1.7%.
Numerous price increases have occurred or been announced since the prices for PPIs were collected in mid-December. Gerdau Ameristeel informed customers on January 11, “Effective with new orders placed Wednesday, January 12, Gerdau Ameristeel is increasing the published price of Beam and Piling Products by $3.25/cwt ($65 per net ton).” Nucor sent similar announcements with immediate large price increases. ClarkWestern Building Systems told customers on Friday that it was “announcing a revision to our announced February price increase from 10 to 15% [for] all shipments on or after February 1…**In addition, ClarkWestern will be implementing a price increase of 10% companywide on all products for shipments on or after March 1” (emphasis in original). The national average retail price of on-highway diesel fuel jumped 7.4 cents per gallon on Monday, to $3.41, the seventh consecutive weekly increase and 54 cents (19%) above the year-ago price, the Energy Information Administration reported on Tuesday. The spot copper price on the Comex division of the New York Mercantile Exchange closed Tuesday at $4.42 per pound, up 29% from a year ago. Thompson Research Group (www.thompsonresearchgroup.com) reported on Tuesday, “wallboardbituminous (asphalt) index for January was $463, the second monthly increase in a row and 8.7% above the November level. In contrast, the New Mexico DOT on Thursday kept the price index for asphalt in February at $586 per ton for the fourth straight month. manufacturers will be attempting to implement between 20%-25% price increases throughout February and March [but] we know a few headwinds exist.” The Illinois Department of Transportation (DOT) on Friday said its
Industrial production (IP) in manufacturing rose 0.4%, seasonally adjusted, in December—the sixth increase in a row and 5.8% above the December 2009 level, the Federal Reserve Board reported on Friday. IP of construction supplies slipped 0.8% in December but rose 8.6% for the year. Capacity utilization in manufacturing moved up to 73.2% of capacity from 72.9% (originally estimated as 72.8%) in November, but still well below the 1972-2009 average of 79.2%. Together, high capacity utilization and sustained rising IP can imply growing demand for factory construction. The Wall Street Journal reported today, “Whirlpool [Corp.] decided in mid-2010 to spend $120 million on a new plant in Cleveland, [Tennessee,] in what will be the company’s first new U.S. factory since the mid-1990s….Caterpillar Inc. is building a $120 million plant to make excavator machines in Victoria, Texas….Dow Chemical Co. is building a 800,000-square-foot plant near its headquarters in Midland, Michigan, to design and make batteries for hybrid and electric vehicles. In addition, Dow aims to expand a pilot project, also in Midland, in which it is making solar roof shingles that generate electricity.”
The Architecture Billings Index (ABI), a measure (centered on 50) of the number of architecture firms out of a panel of 700 that say billings increased minus those that say they decreased in the previous month, jumped to 54 in December from 52 in November and 48 in October, the American Institute of Architects reported today. “This is more promising news that the design and construction industry is continuing to move toward a recovery,” said Chief Economist Kermit Baker. “However, historically December is the most unpredictable month from a business standpoint, and therefore the most difficult month from which to interpret a trend.” By practice specialty, the three-month average ABI was 60 for multi-family residential practices, 53 for commercial/industrial, 51 for institutional, and 48 for mixed-practice firms.
Housing starts declined 4.3% in December to a seasonally adjusted annual rate of 529,000 units, the slowest pace since October 2009, the Census Bureau reported today, with single-family starts down 9.0% but multifamily starts up 18%. Building permits for construction of new homes and apartments rose 17% in December to a rate of 635,000 units, the strongest pace since March of 2010. Single-family permits rose 5.5%, while multifamily permits rose 54%.
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