PPI jumps and construction input prices jump higher; steel prices are mixed
The outlook for steel prices remains murky. The PPI for iron and steel scrap (not seasonally adjusted) fell 5.6% in January, following a 9.2% drop in December, but was up 23% over the past 12 months. The PPI for iron ore rose 7.5% in January, 9.7% in December, and almost 20% for the past 12 months, after seven years of minimal price movements. The “Global Business Briefs” column of today's Wall Street Journal reported, “Anglo-Australian miner BHP Billiton Ltd. has signaled a US$2.7 billion expansion of its Western Australian iron-ore operations….Prices for iron ore-an important steel-making ingredient-could rise by more than 50% this year if steel producers cave in to miners' aggressive demands during current price talks.” The same column quoted the current leading steel producer worldwide, Arcelor SA of Luxembourg, as saying, “After an exceptional year in 2004, 2005 should be challenging for the steel industry and a very good year for Arcelor.”
Industrial production at factories, mines, and utilities was unchanged in January, seasonally adjusted, after rising 0.7% in December, the Federal Reserve reported Wednesday. This is not the bad news it might appear, however, because it was driven down by relatively warm temperatures in January, which pushed utility production down 3% compared to December and 2% compared to January 2004. Manufacturing output rose 0.4% for the month and 5.2% compared to January 2004. Output of construction supplies rose 0.3% in January, 0.6% in December, and 3.9% over the past 12 months. Capacity utilization in manufacturing, which along with factory output can signal possible future demand for factory construction, moved up to 78% of capacity, the highest rate since December 2000.
Building permits climbed to a seasonally adjusted annual rate of 2,105,000 in January, a 1.7% rise from December and 6.8% from January 2004 (based on a new, larger universe of permit-issuing places), the government reported Wednesday. Single-family permits rose 0.7% for the month and 6% from a year before. Permits for buildings with five or more units rose 9.5% for the month and 14% from a year before. Housing starts rose to a 21-year high overall and a record for single-unit starts. Total starts were up 4.7% for the month and 12% from a year before; single-unit, +2.7% and +12.5%; 5+ unit, +18% and +5%. On Tuesday, a further hint of future home building came from the National Assn. of Home Builders (NAHB)'s housing market index, based on a monthly survey of builders. The index dropped from 70 in December to 68 in January. “That dip was most likely related to above-average precipitation…indeed, some builders…mentioned the weather as a factor,” NAHB said. “Even so, the current-sales component still posted a solid 74 reading, while the components gauging expected sales in the next six months and traffic of prospective buyers held steady at 78 and 50.”
Retail and food services sales fell 0.3% in January, seasonally adjusted, the Census Bureau reported Tuesday. Excluding motor vehicle and parts, sales rose 0.6%. Both series rose 7-8% from January 2004.
The number of extended mass layoffs (events involving 50 or more workers for at least 31 days) and number of workers affected in the fourth quarter “were sharply lower than in October-December 2003, with separations at its lowest level for any fourth quarter since the program began in 1995,” BLS reported Wednesday. “The declines over the year were most notable in food and beverage stores, administrative and support services, heavy and civil engineering construction, and transportation equipment manufacturing.”