- MARKET SECTORS
- Al Levi: Managing Your Business
- John Siegenthaler: Hydronics Workshop
- Dan Holohan: Heating Help
- Julius Ballanco: Plumbing Primer
- Paul Ridilla: Practical Management
- Kenny Chapman: Blue Collar Coach
- Adams Hudson: Marketing Strategies
- Jim Hamilton: The Bottom Line
- Ray Wohlfarth: The Boiler Room
- Morris Beschloss: Beschloss Perspective
- Kelly Faloon: Editorial Opinion
- WEB EXCLUSIVES
The producer price index (PPI) for finished goods jumped 1% in July, seasonally adjusted, propelled by a leap in energy costs, the Bureau of Labor Statistics (BLS) reported on Wednesday. From July 2004 to July 2005, the index climbed 4.6%. The “core” index, which omits food and energy costs, rose 0.4% for the month but only 2.8% over the past 12 months. The PPI for materials and components for construction slipped 0.2% for the month, bringing the year-over-year increase down to 4.5%. The moderation was caused by a 4% drop in prices for lumber and plywood, which are a very minor factor in nonresidential construction. In contrast, there were large rises in the PPIs for highway and street construction, 11.5%; other heavy construction, 8.9%; and nonresidential buildings, 6.8%. These increases were driven by 14% leaps for cement, ready-mixed concrete, copper and brass mill shapes, and nonferrous pipe, tube, and fittings; 13% for asphalt; and 11% for gypsum products. Worst of all was diesel fuel, up 54%, with a huge additional jump sure to come for August. The PPI for construction machinery and equipment rose 7.1%.
BLS introduced a new PPI for new warehouse building construction, the first of a planned series of PPIs for nonresidential construction. AGC members provided advice on how to specify the prototype warehouse, and general contractors provide BLS with confidential estimates each month of the overhead and profit they would charge to perform a specified portion of the construction. A cost-estimating firm provides data on labor and materials cost. (Further details and a timetable for future building PPIs are at www.bls.gov/ppi/ppinrbc.htm.) The index started with a value of 100 in December 2004. The July index was 106, indicating that the completed cost of a warehouse rose 6%. However, the index is not seasonally adjusted; generally such indexes should only be compared to the same month a year earlier.
Reports of cement shortages continued to expand. Last week, AGC received reports from Arkansas and Montana, making a total of 32 states plus the District of Columbia in which shortages or tight supplies have been reported to AGC or the Portland Cement Assn. Last year, PCA reported shortages in 23 states in May, 28 in August, and 35 in November.
The consumer price index (CPI) for all urban consumers rose 0.5% in July, seasonally adjusted, and 3.2% over the past 12 months, BLS reported on Tuesday. The core CPI inched up 0.1% in July and 2.1% for the 12-month span. The CPI for urban wage earners and clerical workers (CPI-W), which is used to adjust many labor contracts in construction and other industries, rose 0.6% in July and 3.3% over the past 12 months.
Real average weekly earnings, the product of average hourly wages and average weekly hours deflated by the CPI-W, fell 0.5% over the past 12 months, as hourly earnings rose 2.7%, seasonally adjusted, and hours did not change. Average hourly earnings in construction rose just 1.6%, to $19.54 (not seasonally adjusted), 22% above the average for all private nonsupervisory or production workers.
Industrial production at mines, utilities, and factories inched up 0.1% in July, following increases of 0.8% in June and 0.3% in May, the Federal Reserve reported on Tuesday. The manufacturing index rose 0.1%, following increases of 0.4% in June and May. The index for construction supplies climbed 0.7%, following a 1.1% drop in June and no change in May. Capacity utilization in manufacturing, which, along with current output can indicate a need for new factory construction, was 78.3% of capacity in July and June, slightly below the 1972-2004 average of 79.8% and up from 77% in July 2004. Industries for which capacity utilization in July and recent months exceed the long-term average include nonmetallic mineral products (such as gypsum and cement); machinery; food, beverage, and tobacco products; petroleum and coal products; and “other” (logging and publishing).
The number of building permits in July, seasonally adjusted, was 1.6% higher than the upwardly revised June rate and 2.5% higher than a year ago, the government reported on Tuesday. Permits for multi-unit construction rose 0.4% from June but dropped 1.6% from July 2004; single-unit permits were up 2% and 3.8%, respectively. Housing starts remained almost unchanged from June to July, and up 2.8% from July 2004. Over the first seven months of 2005, starts were 3% higher than in January-July 2004 for multi-unit construction and 6% higher for single-family. Meanwhile, homebuilders remained confident. The National Assn. of Home Builders reported on August 15 that its monthly housing market index of builders' expectations had a reading of 67 in August, down from 70 in July and in August 2004, but still “elevated.” The component that measures current sales activity fell from 76 in July to 72 in August; the component for expectations for sales over the next six months held steady at 77; and the component for traffic of prospective buyers dropped from 55 to 50.