The producer price index (PPI) for finished goods jumped 1.4% in February, not seasonally adjusted (1.6%, seasonally adjusted), and 5.6% from February 2010, the Bureau of Labor Statistics (BLS) reported on Wednesday.
The PPI for inputs to construction industries—a weighted average of the price of all materials used in every type of construction, plus items consumed by contractors, such as diesel fuel—rose 1.1% for the month and 6.1% over 12 months. Commodity PPIs that contributed to the large monthly rise included diesel fuel, up 7.1% for the month and 40% over 12 months; copper and brass mill shapes, 4.5% and 20%; steel mill products, 4.7% and 13%; aluminum mill shapes, 0.5% and 8.7%; and insulation materials, 3.5% and 6.0%. All of these items are made from globally traded raw materials (oil, ores, steel scrap) that have risen in price because of growth in developing countries, exchange rate movements or fears of supply disruptions. PPIs for materials produced locally and used only by U.S. construction have barely budged: brick and structural clay tile, -0.4% and -1.9%; gypsum products, -0.7% and -0.6%; concrete products, -0.3% and -0.5%; and asphalt paving mixtures and blocks, 0.9% and 2.2%. These gains intensified the cost squeeze on contractors, as PPIs for subcontractors and for new nonresidential buildings—which include estimated labor costs, overhead and profits—stayed nearly flat. Specifically, the index for new office construction rose 0.3% for the month and 0.4% year-over-year; industrial buildings, -0.1% and 0.6%, respectively; warehouses, 0 and 0.9%; and schools, -0.2% and 1.4%. The PPI for roofing contractors’ new and repair work on nonresidential buildings rose 0.5% for the month but fell 0.8% over 12 months; plumbing contractors, -0.1% and 0.2%; concrete contractors, 0.3% and 0.4%; and electrical contractors, 0.1% and 1.8%.
The consumer price index (CPI) for all urban consumers rose 0.5% in February and 2.1% over 12 months, BLS reported on Thursday. The still-mild increases in the CPI can make it more difficult for contractors to convince owners that materials costs are rising rapidly.
New construction starts fell 4% at a seasonally adjusted annual rate from January to February, McGraw-Hill Construction (MHC) reported on Wednesday, based on data it compiled. “Nonresidential building lost momentum for the second month in a row [falling 5%] and the public works sector retreated [9%] after its elevated pace in January. Meanwhile, residential building in February was able to register modest growth [2%]. For the first two months of 2011, total construction on an unadjusted basis was…down 9% from a year ago. ‘The pace of construction starts continues to fluctuate within a set range, as the gains for one month are taken back by weaker activity in subsequent months,’ stated Robert Murray, vice president of economic affairs for [MHC]. ‘Compared to the declines witnessed from 2007 through 2009, the overall volume of activity has steadied in a broad sense, but this period of low-level stability is turning out to be extended. Given various countervailing factors in the environment, this fluctuation within a set range is likely to continue a while longer. On the plus side, job growth seems to be picking up, vacancy rates are beginning to recede, and interest rates remain low. At the same time, financing for construction projects from the banking sector has shown only modest improvement. And the tough fiscal climate being faced by federal, state, and local governments has added further constraints to public construction programs.’”
Industrial production (IP) in manufacturing rose 0.4% in February, seasonally adjusted, and 6.9% compared with February 2010, the Federal Reserve reported on Thursday. IP of construction supplies was flat for the month but up 7.9% year-over-year. Capacity utilization in manufacturing climbed to 74.3% of capacity from 74.1% (initially estimated as 73.7%) in January but still below the 1972-2010 average of 79.1%. However, capacity utilization for crude-materials production rose to 88.3%, well above the long-run average of 86.4%. Together, strong IP growth and high utilization can signal potential demand for factory construction.
Nonfarm payroll employment (not seasonally adjusted) increased in 266 metro areas from January 2010 to January 2011; decreased in 93, and was unchanged in 13, BLS reported on Friday. The largest gain was in Dallas-Fort Worth-Arlington, 63,600; followed by Houston-Sugar Land-Baytown, 56,600; Chicago-Joliet-Naperville, Illinois-Indiana-Wisconsin, 42,600; Washington-Arlington-Alexandria, District of Columbia-Virginia-Maryland-West Virginia, 40,800; and New York-Northern New Jersey-Long Island, including part of Pennsylvania, 34,600. The largest percentage gain ws in Sandusky, Ohio, 9.0%; followed by Kokomo, Ind., 7.1%; and Odessa, Texas, 6.0%. The largest drop was in Sacramento–Arden-Arcade–Roseville, -14,500; followed by Atlanta-Sandy Springs-Marietta, -12,300; Las Vegas-Paradise, -9,500; Albany-Schenectady-Troy, N.Y., -6,400; and Memphis, Tennessee-Mississippi-Arkansas, -6,300. The largest percentage decrease was in Yuma, Arizona, -3.2%; followed by Lawrence, Kansas, and Napa, California, -2.6% each. Sustained employment gains are an indicator of likely demand for several types of construction. AGC reported last week that the BLS data showed 127 of the 337 areas for which construction employment data is available had increases from January 2010 to January 2011, 163 had decreases, and 47 were unchanged.
Click here to view February PPI Tables.
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