The Data DIGest: 6.24.2010

Posted by TED Magazine on Thursday, June 24, 2010

Construction PPI rose in May but some prices drop since then; IP, Reed show gains

Click here for May PPI tables.

The producer price index (PPI) for finished goods rose 0.3% in May, not seasonally adjusted (but fell 0.3%, seasonally adjusted) and 5.3% over 12 months, the Bureau of Labor Statistics (BLS) reported on Wednesday. The PPI for inputs to construction, a weighted average of all materials used by every type of construction plus items consumed by contractors, such as diesel fuel, increased 0.7% and 5.9%. Despite the higher input costs, contractors continued to bid work at lower prices than a year ago. PPIs for four completed building types were little changed for month but lower than a year earlier: new schools, -0.2% for the month and -1.6% year-over-year; industrial buildings, 0.3% and -3.7%; offices, 0.1% and -3.9%; and warehouses, 0 and -4.6%. The PPIs for subcontractors’ prices for nonresidential new and repair work showed a similar squeeze: plumbing contractors, 0.3% in May and 1.3% year-over-year; concrete, 0 and -1.5%; electrical, 0 and -1.8%; and roofing, 0.1% and 2.0%. PPIs for materials showed a wide range of changes. There were increases in May for steel mill products, 3.5% for the month and 32% year-over-year; lumber and plywood, 3.2% and 24%; and gypsum products, 3.1% and -2.7%. There were decreases in May, after months of large increases, for copper and brass mill shapes, -6.8% and 20%; diesel fuel, -1.8% and 42%; and aluminum mill shapes, -0.4% and 16%.

Prices for several construction inputs have fallen since the PPI data was collected in mid-May. Nucor Steel informed customers on Monday that “Effective with shipments Tuesday, June 15…our composite pricing from merchant bar and structural products will decrease by $45 per ton.” The Energy Information Administration reported on Monday that the national average retail price of on-highway diesel fuel fell for the fifth straight week, to $2.92 per gallon, a three-month low (but 36 cents, or 14%, higher than a year before). Copper futures closed Thursday on the Comex at $2.91 per pound, down 20% from the peak in April. But insulation makers on May 19-21 announced price increases of 20% for July.

The consumer price index (CPI) for all urban consumers rose 0.1% in May, not seasonally adjusted (but fell 0.2%, seasonally adjusted) and 2.0% over 12 months, BLS reported on Thursday. The CPI for urban wage earners and clerical workers (CPI-W), used to adjust wages in many construction and other contractors, rose 2.6% over 12 months.

Industrial production (IP) in manufacturing climbed 0.9% in May, seasonally adjusted, and was 7.9% higher than in May 2009, the Federal Reserve reported on Wednesday. The Fed noted, “gains in semiconductor manufacturing equipment and construction machinery have contributed significantly to the improvement in the industrial and other equipment category….Within nonindustrial supplies, the output of construction supplies increased 0.8% in May after two consecutive months of larger gains,” bringing the year-over-year increase to 3.9%. Capacity utilization in manufacturing advanced to 71.5% of capacity from 70.8% in April and 65.4% in May 2009. Sustained increases in IP and capacity utilization can lead to demand for factory construction.

The value of new nonresidential construction starts in January-May 2010 combined was 9.8% higher than in the same months of 2009, Reed Construction Data announced on Thursday, based on data it compiled. May starts were 16% higher than in April, not seasonally adjusted, “a little more than the usual seasonal gain,” Reed Chief Economist Jim Haughey said. “The value of starts has now been about steady for three months after allowing for seasonality. Current starts are 50% above the low point last June but remain 25% below the pre-recession peak. [Heavy project starts] rose 20% from April in line with the usual seasonal trends and were off 20% from the stimulus-boosted peak last August….May nonresidential building starts were 14% above April, reversing that month’s decline. Typically, there is very little seasonal pickup in May….Although off by 3.6% last month, institutional starts remain relatively high. Commercial starts jumped 52% from an unusually weak April but remain more depressed than institutional starts. There was a significant May rebound in all commercial categories except hotels, which slipped a further 40%.”

Housing starts tumbled 10% in May to a seasonally adjusted annual rate of 593,000 units, the slowest pace since December 2009, the Census Bureau reported on Wednesday. Single-family starts fell 17% to the slowest pace since May 2009. Multifamily starts, which are often more volatile, jumped 33%. Building permits, a reliable indicator of homebuilders’ near-term intentions, slipped 5.9% to a rate of 574,000 units, a 12-month low. Single-family permits dropped 9.9%; multifamily permits rose 9.7%. The expiration of a homebuyer tax credit on April 30 probably caused home builders to slash new construction and may have encouraged builders of rental properties to increase activity.

Total revenue of architectural and related services firms fell 9.4% in the first quarter of 2010, not seasonally adjusted, after rising 0.3% in the fourth quarter, and plunged 15% compared to the first quarter of 2009, Census reported in the Quarterly Services Survey on June 10. Revenue of engineering services firms fell 2.3% in the first quarter, 2.6% in the fourth quarter, and 8.8% over the year.

Employers have a positive outlook regarding hiring in the third quarter in 11 of 13 industry sectors, Manpower Inc. reported on June 8 in its quarterly survey of 18,000 U.S. employers. “A slight quarter-over-quarter increase is expected among employers in construction,” among eight sectors with positive quarterly expectations.

Ken Simonson will be speaking to the National Economist Club on June 24, 2010 in Washington, D.C.