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Construction Materials Prices Unchanged in January

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The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) Producer Price Index (PPI) for materials and components used in construction was unchanged in January after rising 0.1% in December. The index was up 3.1% on a year-over-year basis, but was only 3.7% higher than its January 2009 reading. Meanwhile, prices for raw materials used in construction or to produce products used in construction were up a modest 0.1% after increasing 0.3% in December.

The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) Producer Price Index (PPI) for materials and components used in construction was unchanged in January after rising 0.1% in December. The index was up 3.1% on a year-over-year basis, but was only 3.7% higher than its January 2009 reading. Meanwhile, prices for raw materials used in construction or to produce products used in construction were up a modest 0.1% after increasing 0.3% in December. The index was up a temperate 1.7% from a year earlier and 5.5% from three years earlier.

An index that measures inputs used in nonresidential construction (excluding capital equipment) rose 0.4% after falling 0.4% in December on a not seasonally adjusted (NSA) basis. That was the first increase in the measure since September 2011. Since January 2011, the index was up 4.8%.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12
Composite Indexes (Exclude capital equipment)      
Construction Materials* (Unprocessed materials) 0.1 0.3 0.1 0.2 0.2 0.1 1.7 1.3 1.7 5.5
Materials and Components for Construction*
(Processed goods)
0.0 0.1 0.0 0.1 0.0 0.0 3.1 3.6 3.8 3.7
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
0.4 -0.2 -0.1 0.0 -0.4 -0.2 4.5 5.3 6.2 11.8
    Inputs to New Construction 0.4 -0.2 0.0 0.1 -0.3 -0.2 4.6 5.3 6.2 11.3
        Inputs to Residential Construction 0.6 -0.1 0.0 0.2 -0.2 -0.1 4.4 4.8 5.5 9.4
        Inputs to Nonresidential Construction 0.4 -0.4 0.0 0.0 -0.4 -0.2 4.8 5.8 7.0 NA
            Inputs to Commercial Construction 0.1 -0.2 -0.1 -0.1 -0.2 -0.1 4.0 5.0 5.9 NA
            Inputs to Industrial Construction 0.4 -0.4 0.5 0.2 -0.1 0.1 4.8 5.4 6.4 NA
            Inputs to Heavy Construction 0.5 -0.4 -0.1 0.0 -0.5 -0.3 5.2 6.2 7.4 NA
       
    Inputs to Maintenance and Repair 0.2 -0.5 -0.4 -0.2 -0.7 -0.5 4.1 5.3 6.6 16.7
        Inputs to Nonresidential Maintenance and Repair 0.2 -0.6 -0.5 -0.3 -0.8 -0.5 4.0 5.3 6.7 17.6
        Inputs to Res Maintenance and Repair 0.6 -0.2 0.0 0.1 -0.3 -0.2 4.9 5.5 6.4 12.6
       
  (indexes include installation and overhead)      
New Warehouse Building Construction 0.6 -0.1 0.0 0.2 0.5 0.5 4.2 3.7 3.9 -1.1
New School Building Construction 0.6 0.1 0.1 0.3 0.6 0.5 4.6 4.7 4.5 4.0
New Office Construction 0.7 0.2 0.2 0.3 0.4 0.4 4.1 3.8 3.7 -0.5
New Industrial Building Construction 0.5 -0.1 -0.1 0.1 0.5 0.5 3.6 3.3 3.4 -1.9
       
Production Index: Construction Supplies* -0.4 3.0 0.2 0.9 0.9 0.0 5.6 6.2 2.5 4.0
Retail Sales: Building & Equipment Supplies* 0.2 2.0 -1.0 0.4 0.8 0.2 10.5 4.9 4.5 8.9

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics; Production Index - Federal Reserve Board; Retail Sales - Census Bureau

SA construction machinery prices advanced 0.5% in January after rising 0.4% in December. They were up 4.5% from a year earlier and 6.2% from January 2009. Meanwhile, construction machinery rental rates jumped 3.0% in January after rising 0.2% in December. Since January 2010, they increased 4.8%, a little more than purchase prices rose. However, they only have increased 3.8% from three years earlier, much less than purchase prices.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12
Assembled Equipment      
Hand and Edge tools 1.0 0.1 0.0 0.4 0.1 0.1 1.9 1.1 1.0 1.1
Power Hand Tools 0.4 0.3 -0.1 0.2 0.1 0.0 1.5 1.2 0.8 1.6
Appliances* 1.5 -0.4 1.0 0.7 0.2 0.4 4.4 2.5 2.9 3.9
Furnaces 0.5 -0.8 1.0 0.2 0.5 0.9 6.2 5.3 6.8 4.2
Construction Machinery* 0.5 0.4 0.0 0.3 0.2 0.3 4.5 4.2 4.4 6.2
Construction Machinery Rental (incl. oilfield equip.) 3.0 0.2 -0.4 0.9 -0.6 0.1 4.8 0.8 1.2 3.8
Trucks over 14,000 Ibs. GVW 0.1 -0.4 0.1 0.0 0.3 0.5 1.9 2.1 2.6 7.5
Metal Doors, Sash and Trim -0.1 0.3 0.0 0.0 0.2 0.1 5.7 7.0 6.6 4.9

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Cement
Cement prices continued their recent rise, jumping 2.8% in January after increasing 0.9% in December. Prices were up 4.8% from a year earlier but were still down 7.4% from January 2009. As multifamily construction and other commercial construction improve over coming months, cement prices are likely to continue to face upward pressure. At the same time, the expected slowdown in highway construction will help limit this upward price pressure.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12
Construction Commodities      
Dimension Stone -0.3 -0.2 0.6 0.0 0.1 0.1 0.5 1.3 1.5 7.2
Cement 2.8 0.9 1.2 1.6 0.1 0.0 4.8 1.1 -0.2 -7.4
Construction Sand, Gravel & Crushed Stone* -0.2 0.3 0.1 0.1 0.2 0.1 1.2 1.2 1.4 4.8
Softwood Plywood 3.6 -2.0 1.5 1.0 0.6 2.3 0.1 0.2 3.9 9.2
Hardwood Lumber 0.1 0.4 -0.3 0.1 -0.5 -0.8 -2.0 -2.3 -3.6 4.7
Softwood Lumber* -0.6 -0.8 -1.2 -0.9 0.0 0.0 -18.1 -0.4 1.7 -4.9
Other Commodities      
Industrial Natural Gas* -4.9 -1.5 -3.0 -3.1 -2.2 -1.5 -10.8 -6.1 -1.5 -28.8
Plastic Resins & Materials 3.6 -4.5 2.0 0.3 -0.8 0.9 11.4 10.0 14.1 28.7
Insulation Materials 2.9 0.0 -0.4 0.8 -0.2 -0.2 7.9 5.4 5.4 12.4
Iron & Steel Scrap 3.4 6.6 -6.6 1.0 -0.9 -2.7 2.5 11.1 13.0 117.4
Iron Ore -1.9 5.5 1.2 1.6 2.3 0.4 16.7 20.5 14.3 17.0
Copper Ores -0.4 -0.6 -5.1 -2.1 -3.0 -5.7 -19.0 -15.4 -14.5 105.2
Copper Base Scrap* 5.5 -2.7 2.1 1.6 -3.4 -3.0 -3.9 -3.2 1.4 160.0

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Energy and Related Products
The first effects of the recent rise in oil prices began to emerge in January. Diesel fuel prices surged 5.2% (SA) after increasing 1.0% in December. Diesel prices were up 19.1% from a year earlier and almost double (+99.0%) from January 2009. In addition to higher oil prices, reduced U.S. refinery capacity and exports have pushed these prices higher.

On the positive side, industrial natural gas prices continued to fall, down 4.9% (SA) in January, their fourth consecutive monthly decline. On a year-over-year basis, they were down 10.8%, and have dropped 28.8% since January 2009. In addition to plentiful supply, undoubtedly the mild winter in much of the country has reduced demand for natural gas, adding to the downward pressure on prices. Lower natural gas prices should be helping the bottom line of some manufacturers such as gypsum producers.

Plastic resins and materials prices are showing the effects of higher oil prices. They were up 3.6% (NSA) in January after falling 4.5% in December. They have jumped 11.4% from a year earlier and were up 28.7% from three years earlier.

Higher oil prices and reduced refinery capacity did not fully show up in asphalt prices yet. After spurting up 6.1% (NSA) in December, asphalt prices only rose 0.5% in January. However, they were up 36.7% from a year earlier, and 76.7% from January 2009. Meanwhile, asphalt roofing prices actually fell 2.9% in January after rising 1.0% the month before. Further, prices were down 1.0% from a year earlier and were down 3.9% from three years earlier, no doubt reflecting weak demand from single-family home construction.

Plastic construction products prices rose only modestly in January, up 0.2%, after falling 0.1% in December. However, they were up 3.6% from a year earlier and 7.0% from January 2009. Plastics pipe prices rose 0.5% in January after dropping 1.1% in December. They were up 0.9% from a year earlier and 12.1% since January 2009. Plastics plumbing fixtures prices also were up 0.5% in January following no change in December. Since January 2010, prices were up 4.2% and 4.1% from three years earlier.

Look for the effects of higher oil prices and reduced refinery capacity to continue to flow through to various energy prices and related products — especially plastic and asphalt products — over the coming months.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12 Dec-11 Nov-11 Jan-12
Manufactured Materials      
Gypsum Products 5.9 0.6 -0.4 2.0 0.9 0.3 7.6 -1.5 -1.0 -4.4
Diesel Fuel* 5.2 1.0 4.7 3.6 1.0 2.9 19.1 20.2 32.4 99.0
Asphalt 0.5 6.1 -3.2 1.1 0.9 -2.8 36.7 34.8 19.0 76.7
Asphalt Roofing -2.9 1.0 -5.4 -2.5 -1.4 -1.9 -1.0 2.6 1.7 -3.9
       
Paint 0.5 0.3 0.0 0.3 0.1 0.1 4.4 3.8 3.5 3.8
Plastic Construction Products 0.2 -0.1 -1.3 -0.4 -0.5 -0.4 3.6 3.6 3.9 7.0
    Plastics Pipe 0.5 -1.1 -5.3 -2.0 -2.5 -1.9 0.9 2.1 3.3 12.1
    Plumbing Fixtures 0.5 0.0 0.2 0.2 0.1 0.1 4.2 5.0 5.0 4.1
Vitreous Plumbing Fixtures 1.4 0.0 0.0 0.5 0.0 0.0 2.8 1.6 1.6 7.4
Ceramic Tile -0.3 1.0 -2.0 -0.4 0.0 -0.7 -1.8 -0.8 -0.7 -2.2
Flat Glass -1.0 0.3 -0.3 -0.3 0.3 0.1 0.7 2.2 1.8 -4.1
       
Hot rolled bars, plates & structural shapes 1.6 -1.1 -0.4 0.0 -0.6 -0.3 10.5 12.9 16.8 20.5
Extruded Aluminum rod, bar and other shapes -0.5 -2.7 0.0 -1.0 -2.1 -1.9 -1.2 -0.4 2.1 10.5
Architectural Metalwork 0.0 -0.5 1.4 0.3 0.2 0.4 3.5 4.5 5.2 1.4
Metal Plumbing Fixtures* 0.5 0.2 0.1 0.3 0.2 0.2 3.1 2.6 2.8 5.4
Builders’ Hardware -0.3 -0.1 -0.6 -0.4 -0.2 -0.2 4.9 6.4 6.2 5.5
Sheet Metal Products -1.6 0.0 -0.5 -0.7 0.0 0.1 3.6 5.8 5.8 4.9
       
Steel Mill Products 1.3 -0.6 -1.1 -0.2 -0.8 -0.6 9.4 11.3 13.0 21.3
Steel Pipe and Tube* 4.9 0.8 1.6 2.5 1.1 1.0 15.8 12.1 13.5 22.1
Copper and Copper Products -1.2 -0.5 -2.7 -1.4 -2.8 -4.0 -13.8 -10.0 -6.8 68.4
Copper and Brass Mill Shapes -0.7 -0.4 -2.3 -1.2 -3.7 -3.6 -12.8 -9.3 -7.7 47.6
    Nonferrous Pipe and Tube -1.6 0.1 -12.7 -5.1 -4.6 -4.6 -14.8 -12.2 -10.3 58.2
       
Building Brick -3.5 -0.3 0.5 -1.1 0.1 0.1 -3.1 -2.8 -2.4 -7.1
Ready Mix Concrete* 0.0 0.4 0.4 0.3 0.3 0.2 1.3 0.6 0.1 -3.2
Concrete Block & Brick* 1.1 -0.7 -0.1 0.1 0.0 0.2 2.1 1.1 1.8 1.1
Prestressed Concrete -0.2 0.2 -0.5 -0.2 -0.1 -0.1 -3.0 -3.1 -2.2 -7.5
Precast Concrete Products 0.7 -0.6 0.6 0.2 0.3 0.3 2.7 2.6 3.4 5.6
Concrete Pipe 0.2 0.0 0.4 0.2 0.1 0.2 1.8 1.8 1.6 -5.0
       
Wood Kitchen Cabinets 0.2 0.0 0.2 0.2 0.0 0.0 2.5 2.3 2.2 4.3
Millwork (window, door, cabinet)* 0.4 0.2 0.1 0.2 0.1 0.0 1.5 1.1 1.0 2.7
Engineered Wood Products* -0.4 0.3 0.4 0.1 0.1 0.1 -0.2 1.0 1.3 0.6
Laminated Plastics 0.0 -0.1 0.2 0.0 0.0 0.6 3.9 4.3 4.4 4.0

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Copper and Copper Products
After trending downwards most of the second half of 2011, spot copper prices began rising this year and are now roughly $0.40 a pound higher than the end of the year, though still about $0.60 a pound lower than the same time last year. Nonetheless, prices for copper ores fell 0.4% in January, their sixth consecutive monthly decline, after decreasing 0.6% in December. Prices dropped 19.0% from a year earlier, but doubled (+105.2%) from January 2009.

Copper base scrap jumped 5.5% (SA) in January after falling 2.7% in December. However, prices were down 3.9% from January 2011 but have well more than doubled from three years earlier, escalating a painful 160.0%.

Prices for copper and copper products fell 1.2% in January, their sixth consecutive monthly decline. Prices were down 13.8% from January 2010 but up 68.4% from January 2009.

Copper and brass mill shapes prices were down 0.7% in January after falling 0.4% in December. On a year-over-year basis, they were down 12.8% but were up 47.6% from three years earlier. Copper pipe (nonferrous pipe and tube) prices fell 1.6% after edging up 0.1% in December. They were down 14.8% from a year earlier but up 58.2% from three years earlier.

With spot copper prices on the rise, expect prices for copper products to come under increasing upward pressure in the next month or two.

Softwood Lumber and Gypsum
Single-family housing construction activity is the major driver of demand for softwood lumber and gypsum products, both of which have suffered since single-family housing construction peaked in 2006. There has been modest improvement in the single-family housing market over the last few months. New single-family home sales, although slipping a bit in January, rose over the previous four months. Single-family building permits increased in nine of the last eleven months. January’s 445,000 permits at a seasonally adjusted annual rate (SAAR) were their highest level since December 2010 when there were also 445,000 permits issued. Prior to that, it was April 2010 when single-family permits were higher.

The PPI for softwood lumber peaked this cycle in August 2004. As of January, the index was down 31.7% from that peak. More recently with the slight improvement in single-family housing, softwood lumber prices have moved off their lows (as of January, the index was up 18.1% from its May 2009 cycle low). For January, prices fell 0.6% (SA) after declining 0.8% in December. The index dropped 18.1% on a year-over-year basis and was down 4.9% from January 2009.

Late last year, six gypsum producers announced they were raising prices 35% in January of this year. The PPI for gypsum product prices did increase 5.9% for the month after advancing 0.6% in December. On a year-over-year basis, prices were up 7.6% but were down 4.4% from three years earlier.

Outlook for Construction Materials Prices
The economy appears to be on more solid footing, evidencing better growth. Nonfarm payroll employment increased a solid 203,000 (SAAR) in December and an even better 243,000 in January. At the same time, the unemployment rate fell to 8.3% in January, down from 9.1% a year earlier.

As a result of the improving economy and rising construction activity, construction materials prices appear to have firmed with some modest upward pressure. As the economy advances at a moderate pace, prices will begin to move roughly in line with general inflation.

Faster than projected sustained economic growth (3% or higher at an annual rate) will accelerate commercial construction activity and push materials price inflation higher than general inflation. This seems unlikely to happen before the second half of 2012. Troubles in Europe and expected relatively modest growth in the rest of the world will help keep prices from more rapid gains. The strength of the foreign exchange value of the dollar is another factor helping to hold down prices. However, faster growth in the rest of the world than forecast would add to construction materials price inflation as would stimulative action by some European economies (highly unlikely).

Energy prices remain the biggest risk to materials price inflation and the health of the world economy. The current spike in oil prices is uncomfortable, but not disastrous. A prolonged, even higher increase in oil prices would hurt consumers and adversely affect the growth of the economy, possibly pushing the U.S. back into recession.

by Bernie Markstein

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