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PPI for construction materials jumped in December, year; industrial production rose

January 14, 2005
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The producer price index (PPI) for finished goods fell 0.7% in December, seasonally adjusted, the Bureau of Labor Statistics (BLS) reported, as the finished energy index tumbled 4%. But the “core” PPI, which omits food and energy, edged up 0.1% for the month and 2.2% for the year. While low, that was a notable acceleration from the 1% increase in 2003 and 0.5% decline in 2002. Furthermore, the energy decrease seems sure to be short-lived. Recently the price of crude-oil futures for February delivery closed at $48.04 per barrel, up 18% from its low in December, and natural-gas futures also rose sharply.

Among intermediate goods indexes, the PPI for materials and components for construction rose 0.4% for the month and 10% for the year, compared with 3% in 2003 and 0.8% in 2002. The index had been unchanged in November. BLS commented, “Prices for softwood lumber increased 0.7%, following an 8.0% drop in the prior month. The indexes for plywood, building paper and board, wiring devices, switchgear, fabricated ferrous wire products, heating equipment, and gypsum products also turned up, after falling in November. Prices for nonferrous wire and cable and cement rose more in December than they did in the prior month. By contrast, the index for fabricated structural metal products edged up 0.2%, following a 0.6% gain in November. Price increases also slowed from November to December for concrete products, asphalt felts and coatings, and steel mill products. The index for plastic construction products fell, after rising in the preceding month.” The PPI for crude materials for construction dropped 0.9% in December but wound up the year 4.7% higher. The PPI for construction equipment was flat for the month but rose 6% in 2004.

Aluminum is one construction material experiencing both price and availability issues. The PPI for aluminum mill shapes jumped 2.1% in December and 9.9% in 2004, and the index for aluminum base scrap rose 1% and 12.3%. The Aluminum Association reported “a significant backlog in orders for aluminum sheet, plate, and extrusions in general. Our reports indicate orders for flat rolled products were up 12% in 2004 while orders for extrusions were up 10%. Some of the companies have reported that they have stopped taking orders because of the backlog….that there may be an acute problem with plate and structural shapes since there are very few producers left in North America. Increasing demand for aluminum in North America, Europe and Asia (China) are helping to raise commodity prices on aluminum.” Recently, a supplier in Seattle told a caller that an order for “aluminum plate and structural shapes (small quantity) [was] not available until August.”

Industrial production (IP) at factories, mines, and utilities increased 0.8% in December, seasonally adjusted, and 4.4% for the year, the Federal Reserve reported today. Manufacturing IP moved up 0.7% for the month and 5.1% for the year. Capacity utilization in factories rose to 77.8% of capacity in December from 77.4% in November and 75% in December 2003. Utilization averaged 79.9% in 1972-2003. Together, growth of factory IP and utilization can suggest future demand for plant construction. IP of construction supplies moved up 0.3% in December and 4.1% in 2004. BLS provided information on employment and wages by industry for the 10 largest counties. In the U.S. as a whole, total employment grew by 1.2% from June 2003 to June 2004 and the average weekly wage rose by 3.1% from the second quarter of 2003 to the same quarter of 2004. Construction added 3.4% to employment and 2.2% to average weekly wages. For the 10 largest counties, the employment and average wage changes were: Los Angeles, 5.4% and 3.6%; Cook (Chicago and near suburbs), -1.7% and 2.6%; New York (Manhattan), -3.7% and 2.9%; Harris (Houston), -7.6% and 6%; Maricopa (Phoenix and suburbs), 8.4% and 2.7%; Dallas, -1.2% and 2%; Orange (south of Los Angeles), 8.3% and 2.7%; San Diego, 9% and 1.9%; King (Seattle and some suburbs, 1.7% and 1%; Miami-Dade, 2.7% and 7.2%.

“The pace of health spending growth slowed in 2003 for the first time in seven years, driven in part by a slowdown in public spending growth,” the January/February issue of Health Affairs reported (www.healthaffairs.org). “U.S. health care spending rose 7.7% in 2003, much slower than the 9.3% growth in 2002.” The growth rate in private health-insurance premiums slowed to 9.3% from 10.7% in 2002. Other surveys suggest that private premium growth has slowed to the 7-8% range in 2004 and 6-7% for 2005. Healthcare construction spending, which climbed 9% in the first 11 months of 2004, may grow more slowly as a result.

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