Plumbing and Mechanical

Producer prices, industrial production rise in October overall and for construction

November 14, 2003
The producer price index (PPI) for finished goods jumped 0.8%, seasonally adjusted, in October, the Bureau of Labor Statistics announced.

Vol. 3, No. 46

November 11-14, 2003

The Data DIGest

The producer price index (PPI) for finished goods jumped 0.8%, seasonally adjusted, in October, the Bureau of Labor Statistics (BLS) announced today, saying, “Rising prices for beef and veal, light motor trucks, and passenger cars led the increase…” Nevertheless, the 12-month gain held steady at 3.4%, suggesting that finished-goods producer prices are not accelerating on a sustained basis. The index for construction machinery rose 0.1% for the third straight month; it has gained 1.5% over the past 12 months. Among intermediate-goods indexes, the PPI for materials and components for construction rose 0.3% in October, compared to increases of 0.9% in September and 0.1% in August. The 12-month rise amounted to 2.3%. The advance was again led by plywood, which tacked on a 5% gain after rising 17% and 2%; plywood has soared 37% in 12 months. BLS commented, “Price increases for millwork and for prefabricated wood buildings and components also slowed in October. The indexes for softwood lumber, hardwood lumber, treated wood, and gypsum products fell, after moving up in September. Prices for paving mixtures and blocks declined at a quicker rate in October than they did in the previous month. On the other hand, the index for concrete products edged up 0.1%, following a 0.4% decrease in September. Prices for wiring devices also turned up. The indexes for steel mill products and plastic construction products rose at a quicker pace in October than they did a month earlier.” The crude-materials index for construction rose 0.8% in October vs. 0.9% and 1% in the two prior months. It was down 0.2% from a year ago.

Industrial production (IP) at factories, mines, and utilities climbed 0.2% in October, seasonally adjusted, the Federal Reserve reported today. Manufacturing output edged up 0.1%, following a gain of 0.7% in September, 0 in August (revised up from an earlier estimate of -0.2%) and 0.5% in July. Capacity utilization in manufacturing was unchanged from the upwardly revised September reading of 73.5%; a year ago the rate was 73.7%. (All figures incorporate annual “benchmark” revisions posted on November 10.) Factory construction is not likely to pick up without sustained increases in both series. IP for construction supplies, now estimated to constitute 4.3% of total IP in 2002, rose 1% in October following increases of 0.3%, 0.4%, and 0.7% in the previous three months. But the increases only brought October's index level with October 2002.

Utilities increased capacity 4.5% over the past year, while their output fell 0.2%, the Fed figures show. Their current utilization rate, 84%, is down from 87.9% a year ago and a 30-year average of 87%. The Wall Street Journal reported Tuesday, “The U.S. electric-power industry, lured by the promised of deregulated markets, has added far more generating plants than will be needed for years….the equivalent of 400 big power plants has been added since 1999, boosting the total by 24% at a time when demand had flattened out…Many firms are completing half-built plants rather than take a total loss, continuing to increase the surplus.” Recent Census and McGraw-Hill Construction Dodge reports confirm both the ongoing work and the drop in new orders. Census data on value of construction put in place for power was up 0.7% for the first nine months of 2003 compared to the same period of 2002. The Dodge release on new contracts in September reported, “A ten-fold increase for the volatile electric utility category, reflecting the start of three very large projects - a $1.2 billion power plant in Iowa, a $439 million power plant expansion in Florida, and a $95 million power plant in Indiana. Even with an exceptional September, electric utilities dropped 27% on a year-to-date basis, as the correction from the record high achieved in 2001 continues.”

Retail and food services sales, seasonally adjusted, fell for the second straight month in October, sliding 0.3% after a revised 0.4% (initially 0.2%) drop in September. Despite the recent slippage, sales for the first 10 months of this year are 5.4% ahead of January-October 2002, well above the rate of inflation. All categories are up except department stores (-4%) and miscellaneous store retailers (-0.1%). The biggest gain is the 13% jump in sales at warehouse clubs, superstores, and “all other general merchandise stores” such as “dollar” and “deep discount” stores, indicating a huge shift in buying patterns from department stores (and specialty retailers) to the “big-box” stores.

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved.