Construction materials costs climb; Beige Book, Manpower surveys show optimism
Among intermediate goods, BLS said, “Subsequent to a 1.7% gain in April, the index for materials and components for construction moved up 1.5% in May. Prices for fabricated structural metal products increased 2.5% in May, following a 3.1% rise in the prior month. Prices also increased more slowly for millwork, wiring devices, steel mill products, and fabricated ferrous wire products. The index for nonferrous wire and cable turned down, after advancing in April.
Conversely, prices for mineral wool for structural insulation turned up 3.4% in May, following a 0.8% decline in the prior month. The indexes for asphalt felts and coatings and hardwood lumber also turned up, after decreasing a month earlier. Heating equipment prices advanced, following no change in April. The index for air conditioning and refrigeration equipment rose more in May than it did in the previous month.”
Among basic materials, the PPI for iron and steel scrap fell 16% in May, following a 10% decrease in April, but remained 52% higher than in May 2003. The indexes for aluminum base scrap, copper base scrap, and copper ores also declined in May. In contrast, prices rose for iron ore and construction sand, gravel, and crushed stone.
Although cement prices have not risen much, the Portland Cement Assn. reported June 8 that cement is in “tight supply” in part or all of 23 states (www.cement.org). Shortages may spread further, because many of the states that have not experienced shortages yet are in the north, where the paving and foundation-pouring season has recently gotten into full swing.
The consumer price index (CPI) for all urban consumers rose 0.6% in May, seasonally adjusted, BLS reported Tuesday. But the core index was up only 0.2% for the month and 1.7% over the past 12 months. The CPI for urban wage earners and clerical workers (CPI-W), used to adjust many construction labor contracts, rose 0.7% in May, not seasonally adjusted, and 3% over the latest 12 months. The increase caused real (net of inflation) average weekly earnings to fall 0.4% in May as hourly earnings rose 0.3% and average weekly hours were unchanged. Over the past 12 months, average hourly earnings rose 2.4% overall but just 1.4% in construction. Nevertheless, construction wages, at an average of $19.13 per hour, were 22% higher than the all-industry average of $15.64.
Industrial production at factories, mines, and utilities advanced 1.1% in May, seasonally adjusted, after having risen 0.8% in April, the Federal Reserve reported. Output was 6.3% higher than its level in May 2003. Manufacturing output increased 0.9% in May and was just 0.3% below the peak reached in June 2000. Production of construction supplies rose 1.4% in May, following a 1% increase in April, and was 6.5% higher than in May 2003. Capacity utilization in manufacturing, an indicator of possible future demand for factory construction, rose to 76.4% in May, from 72.6% a year before, but was still below the 1972-2003 average of 80%.
Also, the “Beige Book,” a survey by economists in the 12 Federal Reserve districts of local businesses, stated, “Reports from the Federal Reserve Banks indicate that economy activity in April and May continued to expand across the nation. Manufacturing activity continued to rise in most districts, with several districts describing the increases as broad-based. Most Federal Reserve districts reported increased demand for services. Retail sales remained even or rose in most districts. Residential real estate markets remained strong, and a few districts noted stable or improving conditions in commercial real estate markets.”
Building permits, a reliable indicator of near-term future construction, climbed to a seasonally adjusted annual rate of 2,077,000 in May, the Census Bureau reported, 3.5% higher than in April and 12% higher than in May 2003. Permits in the first five months of 2004 were 11% ahead of January-May 2003, with single-family, 2-4 unit, and 5+ unit permits all higher
. Manpower Inc.'s quarterly survey of hiring intentions found that “With seasonal variations removed from the survey results, the employment outlook for the coming quarter is identical to the second quarter and represents one of the largest year-over-year increases in the survey's history. [Employers] in the construction sector voice weaker hiring intentions [but] still foresee a strong hiring pace…Hiring projections are noticeably improved from a year ago.”