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Construction Materials Prices Rise More Slowly in March

0 5616 Market Intelligence

The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) Producer Price Index (PPI) for materials and components used in construction rose 0.2% in March down from February’s 0.9% increase. The index was up 3.1% on a year-over-year basis, and 6.5% since March 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction advanced 0.4% after increasing 0.7% in February.

The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) Producer Price Index (PPI) for materials and components used in construction rose 0.2% in March down from February’s 0.9% increase. The index was up 3.1% on a year-over-year basis, and 6.5% since March 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction advanced 0.4% after increasing 0.7% in February. The index was up 3.0% from a year earlier and 5.5% from three years earlier.

An index that measures inputs used in nonresidential construction (excluding capital equipment) paints a much less rosy picture, surging 1.6% after increasing 0.8% in February on a not seasonally adjusted (NSA) basis. The large increases appear to be largely driven by higher energy prices. On a year-over-year basis, the index was up 4.0% in March.

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
  Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12
Composite Indexes (Exclude capital equipment)      
Construction Materials* (Unprocessed materials) 0.4 0.7 0.1 0.4 0.4 0.2 3.0 2.6 1.7 5.5
Materials and Components for Construction*
(Processed goods)
0.2 0.9 0.0 0.4 0.4 0.0 3.1 3.5 3.1 6.5
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
1.4 0.9 0.4 0.9 0.3 0.0 3.8 4.4 4.5 16.3
    Inputs to New Construction 1.3 0.9 0.4 0.9 0.4 0.0 3.9 4.5 4.6 15.6
        Inputs to Residential Construction 1.1 0.8 0.6 0.8 0.4 0.1 3.8 4.4 4.4 12.8
        Inputs to Nonresidential Construction 1.6 0.8 0.4 1.0 0.3 0.0 4.0 4.6 4.8 NA
            Inputs to Commercial Construction 1.1 0.7 0.1 0.7 0.2 -0.1 3.2 3.9 4.0 NA
            Inputs to Industrial Construction 1.2 0.5 0.4 0.7 0.2 0.2 3.9 4.3 4.8 NA
            Inputs to Heavy Construction 1.7 1.0 0.5 1.1 0.3 0.0 4.2 5.1 5.2 NA
       
    Inputs to Maintenance and Repair 1.4 1.1 0.2 0.9 0.3 -0.2 3.0 3.9 4.1 22.1
        Inputs to Nonresidential Maintenance and Repair 1.4 1.1 0.2 0.9 0.2 -0.3 2.7 3.6 4.0 23.2
        Inputs to Res Maintenance and Repair 1.5 1.0 0.6 1.0 0.4 0.1 4.4 5.0 4.9 17.3
       
  (indexes include installation and overhead)      
New Warehouse Building Construction 0.2 0.0 0.6 0.3 0.2 0.2 4.3 4.2 4.2 -0.6
New School Building Construction 0.1 0.0 0.6 0.2 0.2 0.2 4.7 4.7 4.6 3.7
New Office Construction 0.2 -0.1 0.7 0.3 0.2 0.3 3.9 3.8 4.1 -0.3
New Industrial Building Construction -0.2 -0.2 0.5 0.0 0.1 0.1 3.6 3.8 3.6 -1.4
       
Production Index: Construction Supplies* -1.4 1.9 -0.2 0.1 1.6 1.1 6.2 9.2 7.4 12.6
Retail Sales: Building & Equipment Supplies* 3.0 0.7 1.7 1.8 1.9 1.3 12.4 16.3 12.9 25.9

*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 were flat in March after rising 0.5% in February. They were up 4.2% from a year earlier and 6.3% from March 2009. Meanwhile, construction machinery rental rates fell 0.9% following their 0.3% decline in February. The drop in February and March may have been reaction to January’s 3.0% jump. On a year-over-year basis, rental rates were up 2.5% and only 2.8% from three years earlier.

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
  Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12
Assembled Equipment      
Hand and Edge tools 0.3 -0.3 1.0 0.3 0.3 0.4 1.8 1.6 1.9 1.6
Power Hand Tools 0.8 0.0 0.4 0.4 0.2 0.2 2.4 1.2 1.5 2.2
Appliances* 0.9 0.0 1.5 0.8 0.4 0.6 5.5 4.7 4.4 3.6
Furnaces 0.2 0.3 0.5 0.3 0.0 0.3 4.6 5.5 6.2 4.7
Construction Machinery* 0.0 0.5 0.5 0.4 0.4 0.4 4.2 4.6 4.5 6.3
Construction Machinery Rental (incl. oilfield equip.) -0.9 -0.3 3.0 0.6 0.4 1.0 2.5 6.0 4.8 2.8
Trucks over 14,000 Ibs. GVW -0.1 0.7 0.1 0.2 0.2 0.1 2.7 2.8 1.9 8.0
Metal Doors, Sash and Trim 0.0 0.9 -0.1 0.3 0.4 0.1 5.1 5.7 5.7 6.1

*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 decreased 0.4% in March following a 2.4% drop in February. That left prices up a modest 1.5% from a year earlier and down 7.8% from March 2009. Cement prices are likely to stabilize and face upward pressure as multifamily construction and other commercial construction improve over coming months. However, the slowdown in highway construction (SA highway construction spending fell in December, January, and February) will 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
  Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12
Construction Commodities      
Dimension Stone 0.5 1.1 -0.3 0.4 0.2 -0.2 2.0 1.8 0.5 4.5
Cement -0.4 -2.4 2.8 0.0 1.2 2.2 1.5 2.2 4.8 -7.8
Construction Sand, Gravel & Crushed Stone* 0.4 0.7 -0.2 0.3 0.3 0.1 2.5 2.2 1.2 4.8
Softwood Plywood 3.7 6.5 3.6 4.6 3.4 0.4 9.6 4.7 0.1 22.6
Hardwood Lumber 1.1 -0.8 0.1 0.1 -0.2 -0.1 -1.9 -2.3 -2.0 8.2
Softwood Lumber* 2.4 -0.1 -0.6 0.6 -0.5 -0.8 0.5 -1.3 -3.2 23.0
Other Commodities      
Industrial Natural Gas* -1.1 -2.7 -4.9 -2.9 -2.8 -3.1 -15.2 -14.2 -10.8 -24.4
Plastic Resins & Materials 0.5 0.3 3.6 1.4 1.0 1.2 7.3 8.9 11.4 27.0
Insulation Materials -0.2 0.4 2.9 1.0 1.1 0.9 4.4 5.0 7.9 11.6
Iron & Steel Scrap 1.4 -6.2 3.4 -0.5 1.7 1.0 -3.5 -4.5 2.5 132.5
Iron Ore NA NA -1.9 1.9 0.7 1.5 23.6 NA 16.7 20.1
Copper Ores 3.4 8.4 -0.4 3.8 1.7 0.8 -10.6 -15.3 -19.0 114.8
Copper Base Scrap* -3.8 5.2 5.5 2.1 2.8 1.3 -0.7 -2.3 -3.9 145.8

*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
Diesel fuel prices dropped 6.3% (SA) after increasing 4.1% in February and 5.2% in January. Diesel prices were up 6.6% from a year earlier and well more than double (+146.4%) from March 2009.

The glut of industrial natural gas pushed prices down for the sixth consecutive monthly, dropping 1.1% (SA) in March following a 2.7% decline in February. On a year-over-year basis, they dropped 15.2%, and have fallen 24.4% since March 2009. In addition to plentiful supply, the mild winter and warm spring in much of the country has reduced demand for natural gas, adding to the downward pressure on prices.

Plastic resins and materials prices were up 0.5% (NSA) in January after rising 0.3% in February. They have risen 7.3% from a year earlier and were up 27.0% from three years earlier.

Previous oil price increases and reduced refinery capacity are feeding through to asphalt prices, which rose 3.0% in March (NSA) following a 2.8% increase in February. On a year-over-year basis, they were up a sharp 31.7%. Since March 2009, asphalt prices jumped 85.9%. Meanwhile, asphalt roofing prices inched up 0.2% in March after falling 0.5% the month before. Prices were unchanged from a year earlier and down 3.9% from three years earlier.

Plastic construction products prices slipped 0.1% in March after advancing 2.3% in February and 0.2% in January. They were up 4.5% from a year earlier and 9.6% from March 2009. Plastics pipe prices rose 1.2% in March after an even bigger 2.6% February increase. They were up 3.8% from a year earlier and 17.5% since March 2009. Plastics plumbing fixtures prices rose 0.4% in March following no change in February. Since March 2011, prices were up 4.6% and 4.4% from three years earlier.

World oil prices have eased off from their highs recently. The feed through effect of previously higher oil prices will slow and may even result in small declines in prices. Some prices that are closely tied to oil prices, such as gasoline prices, are already posting minor declines. Gasoline prices in particular were adversely affected by higher world oil prices and normal spring maintenance of refineries, which reduced production. Given current limited refinery capacity, any disruption to refinery production translates rapidly into higher prices. Earlier than normal warm spring weather may have encouraged more travel by consumers, resulting in higher than normal demand for gasoline.

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
  Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12 Feb-12 Jan-12 Mar-12
Manufactured Materials      
Gypsum Products 2.2 5.1 5.9 4.3 3.9 2.1 9.1 15.2 7.6 4.2
Diesel Fuel* -6.3 4.1 5.2 0.8 3.5 3.6 6.6 14.5 19.1 146.4
Asphalt 3.0 2.8 0.5 2.1 3.0 1.1 31.7 28.3 36.7 85.9
Asphalt Roofing 0.2 -0.5 -2.9 -1.1 -0.8 -1.9 0.0 -1.9 -1.0 -3.9
       
Paint -0.2 10.5 0.5 3.5 3.6 0.2 11.9 15.2 4.4 14.2
Plastic Construction Products -0.1 2.3 0.2 0.8 0.8 -0.4 4.5 5.4 3.6 9.6
    Plastics Pipe 1.2 2.6 0.5 1.5 0.8 -1.8 3.8 4.2 0.9 17.5
    Plumbing Fixtures 0.4 0.0 0.5 0.3 0.2 0.2 4.6 4.1 4.2 4.4
Vitreous Plumbing Fixtures 0.0 0.1 1.4 0.5 0.5 0.5 2.9 2.9 2.8 7.4
Ceramic Tile -0.7 0.8 -0.3 -0.1 0.4 -0.1 -1.1 -0.7 -1.8 -1.4
Flat Glass 0.3 0.2 -1.0 -0.2 0.0 -0.1 1.5 1.0 0.7 -2.6
       
Hot rolled bars, plates & structural shapes 0.0 -1.3 1.6 0.1 -0.4 0.1 3.5 5.9 10.5 29.9
Extruded Aluminum rod, bar and other shapes 1.5 2.7 -0.5 1.2 -0.2 -2.0 -0.4 0.4 -1.2 23.9
Architectural Metalwork -0.6 0.4 0.0 -0.1 0.1 0.1 2.2 4.2 3.5 4.0
Metal Plumbing Fixtures* 0.6 -0.1 0.5 0.3 0.2 0.3 3.3 2.9 3.1 5.9
Builders’ Hardware -0.3 -0.2 -0.3 -0.3 0.0 0.0 3.5 3.6 4.9 5.4
Sheet Metal Products 0.0 -0.5 -1.6 -0.7 -0.3 0.0 1.3 2.4 3.6 7.1
       
Steel Mill Products -0.6 0.6 1.3 0.4 0.2 -0.2 0.4 4.0 9.4 29.6
Steel Pipe and Tube* -3.2 -1.2 4.9 0.1 1.0 2.2 6.1 10.0 15.8 26.8
Copper and Copper Products 1.1 6.9 -1.2 2.2 1.6 0.1 -7.2 -10.9 -13.8 83.7
Copper and Brass Mill Shapes 0.5 5.9 -0.7 1.9 1.6 0.3 -6.0 -11.2 -12.8 61.2
    Nonferrous Pipe and Tube 1.0 3.0 -1.6 0.8 0.4 -0.6 -9.0 -17.3 -14.8 65.8
       
Building Brick -0.3 0.2 -3.5 -1.2 -1.2 -1.1 -3.4 -3.0 -3.1 -7.0
Ready Mix Concrete* 0.3 -0.1 0.0 0.1 0.1 0.3 1.8 1.5 1.3 -2.3
Concrete Block & Brick* -0.1 -0.1 1.1 0.3 0.3 0.2 1.2 1.8 2.1 0.9
Prestressed Concrete 0.0 0.2 -0.2 0.0 0.1 0.0 0.1 -4.8 -3.0 -4.6
Precast Concrete Products 0.7 0.1 0.7 0.5 0.3 0.4 3.6 3.1 2.7 7.0
Concrete Pipe 0.9 0.1 0.2 0.4 0.1 0.2 1.4 0.8 1.8 -3.9
       
Wood Kitchen Cabinets 1.2 0.1 0.2 0.5 0.1 0.1 2.3 2.4 2.5 4.0
Millwork (window, door, cabinet)* 0.2 1.7 0.4 0.8 0.1 -0.4 3.2 3.4 1.5 4.1
Engineered Wood Products* 0.3 0.2 -0.4 0.0 -0.1 -0.1 -1.4 -1.1 -0.2 3.3
Laminated Plastics 0.0 0.0 0.0 0.0 0.0 0.0 2.5 2.5 3.9 3.8

*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
Spot copper prices rose quickly at the beginning of this year, then held around the $3.80-$3.90 per pound level until just recently. As of the middle of April, spot prices were off their recent highs, though still roughly $0.20 a pound higher than the end of 2011. That leaves copper spot prices about $0.70 a pound lower than the same time last year. The earlier movement upward in spot copper prices shows up in the PPI for copper ores prices for March and February, which were up 3.4% (NSA) and 8.4%, respectively. As would be expected based on the movement in spot prices, copper ores prices were down 10.6% from a year earlier. However, indicating how much copper prices have risen over the past few years, they have more than doubled since March 2009 (+114.8%).

In a positive sign for future copper prices (and supported by recent spot copper price movements just noted), copper base scrap prices fell 3.8% (SA) in March following increases of 5.2% in February and 5.5% in January. Prices were down only a bit, 0.7%, from a year earlier but also have well more than doubled from three years earlier — up 145.8%.

Prices for copper and copper products appear to be experiencing the feed through effects of earlier copper price increases, rising 1.1% (NSA) in March following a 6.9% jump in February. Prices were down 7.2% from March 2011 but up 83.7% from March 2009.

Copper and brass mill shapes prices were up a relatively modest 0.5% in March after advancing 5.9% in February. On a year-over-year basis, they were down 6.0% but were up 61.2% from three years earlier. Copper pipe (nonferrous pipe and tube) prices increased 1.0% after rising 3.0% in February. They were down 9.0% from a year earlier but up 65.8% from three years earlier.

With spot copper prices flat to down, expect price increases for copper products to moderate over 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 some slight improvement in the single-family housing market over the last few months. New single-family home sales, although slipping a bit of late, have shown a modest upward trend over the past few months. Single-family building permits, although down in March, have seen their three-month moving average increase in each of the past eleven months. March’s three-month moving average of 464,000 permits at a seasonally adjusted annual rate (SAAR) were their highest level since May 2010.

The PPI for softwood lumber increased 2.4% (SA) in March after falling the four previous months. On a year-over-year basis, prices were up 0.5% and have moved 23.0% higher since March 2009.

Late last year, six gypsum producers announced they were raising prices 35% in January of this year. The PPI for gypsum product prices increased 5.9% in January, 5.1% in February, and an additional 2.2% in March. On a year-over-year basis, prices were up 9.1% but only up 4.2% from three years earlier. With only very modest improvement in single-family construction, the next few months will test the ability of gypsum producers to hold the price line.

Outlook for Construction Materials Prices
Some recent reports suggest that the economy is struggling a bit. But this may largely be due to the unusual weather conditions over the past few months. Undoubtedly, some economic activity was pulled forward, taking advantage of the unusual favorable weather. Further, the seasonal adjustment process may have inflated the reported activity for December, January, and February. Now, as March and April numbers come in, that same adjustment process may make it appear that activity has slowed when it has not. We may have to wait until May and June data are reported before we have a clearer view on the economy. For now, however, the economy appears to be on solid footing, with respectable if not spectacular growth.

The Reed Construction Data forecast is still for rising construction activity. This will result in modest upward pressure on construction materials prices. As the economy advances at a moderate pace, prices will 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. 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).

Rapidly rising energy prices remain the biggest risk to materials price inflation and the health of the world economy, though that risk has fallen of late. The recent spike in oil prices appears to be over and is abating. But as always, a prolonged, spike in oil prices (higher than recently experienced) 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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