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Core Producer Prices Rise Modestly; Lumber, Health-Care Costs Are Exceptions

September 18, 2003
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The producer price index (PPI) for finished goods rose a seasonally adjusted 0.4% in August, following increases of 0.1% in July and 0.5% in June, the Bureau of Labor Statistics (BLS) announced.

The Data DIGest, Vol. 3, No. 37

September 8-12, 2003

The producer price index (PPI) for finished goods rose a seasonally adjusted 0.4% in August, following increases of 0.1% in July and 0.5% in June, the Bureau of Labor Statistics (BLS) announced today. The “core” index, which omits energy and food prices, has been far more stable: +0.1% in August, +0.2% in July, and -0.1% in June. The index for construction machinery and equipment rose 0.1% for the third straight month. Among intermediate-stage goods, BLS said, “Prices for materials and components for construction moved up at a 0.1% rate in August, following a 0.3% gain in July. The softwood lumber index advanced 0.4%, after rising 4.6% in the prior month. Price increases for plywood, millwork, treated wood, and hardwood lumber also slowed in August. The indexes for gypsum products and for prefabricated wood buildings and components turned down, after advancing in July. On the other hand, prices for plastic construction products fell 0.2% in August, compared with a 1.5% drop a month earlier. The indexes for steel mill products, paving mixtures and blocks, fabricated structural metal products, and nonferrous wire and cable turned up, following declines in the previous month.” Among crude goods, the index for construction sand, gravel, and crushed stone rose 0.2% in August after falling 0.1% in July.

“Wholesale costs of lumber have soared in the past few weeks, driven by the continuing boom in new-home construction, the harsh winter that shortened this year's building season and the military's need for wood for U.S. troops' camps in Iraq. Given that wood accounts for a third of the cost of materials for new homes, the stratospheric increases soon will start to hit homeowners,” the Seattle Post-Intelligencer reported Tuesday.

Health-care premiums climbed 14% this year, the biggest jump since 1990, the Kaiser Family Foundation reported Tuesday.

Retail and food services sales rose a seasonally adjusted 0.6% in August following a 1.3% gain in July. The figures are not adjusted for inflation, and growth in both months was pushed up by rising gasoline prices. Sales other than at gas stations rose 0.4% in August, faster than inflation but not particularly strong given the boost to disposable income that occurred in August from federal tax “rebates” to many families.

The Wall Street Journal, citing Robert Bach, national director of market analysis at Grubb & Ellis Co, reported Monday, “Builders continue to add [office] space, but a thinning pipeline of projects means new supply will slow to 15 million square feet next year, the lowest since 1996. Demand also turned positive in the second quarter, partly because tenants sublet so much space in recent years that they have little spare room into which to expand as their buiness picks up again, Mr. Bach said. However, rents are still falling.”

The “Business World” column in Wednesday’s Wall Street Journal reported, “Except for a blip just before hostilities in Iraq, demand for the new government-backed [property] insurance has been slight. An influential survey of insurance brokers in July found that three-quarters of customers were turning down the coverage, even at subsidized rates, saying that they just don’t feel the need.”

Average mortgage rates dropped roughly 30 basis points (0.3 percentage points) this week for fixed-rate mortgages and more than 10 basis points for adjustable-rate mortgages, Freddie Mac and the Mortgage Bankers Assn. of America (MBA) reported. MBA also said applications for refinancing rose sharply for the first time in several weeks. Rates are again slightly below year-ago levels. Together, these data suggest that home building and remodeling will not suffer steep declines in the near future.

Professional remodelers were busier in this year's second quarter than they have been at any time in the past two years, and most expect business to continue improving throughout the coming months, according to results of the NAHB’s quarterly survey of about 550 professional remodelers.

A potpourri of infrastructure news: A new publication from the National Association of Home Builders (NAHB) and the National Association of Realtors, "Building for Tomorrow: Innovative Infrastructure Solutions," explains alternative mechanisms that state and local governments can use to finance and manage infrastructure, and it offers examples of how these alternatives have been applied successfully. Connecticut’s “General Assembly Monday approved issuing nearly $1 billion in bonds for new school construction, transportation projects, reducing the deficit and upgrading government computer systems,” the Stamford Advocate reported Tuesday. “The U.S. Army Corps of Engineers [last] week announced it is pouring $146 million—or 32% of its annual budget of $451 million—[into the Everglades] joint federal-state eco-reclamation project,” according to the Sept. 5 South Florida Business Journal. Thursday the Federal Energy Regulatory Commission approved Sempra Energy’s bid to build a $700 million liquefied natural gas terminal in Louisiana, beginning in early 2004, the first in over 20 years.

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