Plumbing and Mechanical

Construction price indexes rise steeply; manufacturing output, housing starts leap

February 21, 2006
The producer price index (PPI) for finished goods rose 0.3% in January, seasonally adjusted, the Bureau of Labor Statistics (BLS) reported recently. The “core” index, which excludes food and energy costs, rose 0.4%. Over the past 12 months, the overall PPI rose 5.7% but the core was up only 1.5%. The only PPI that tracks completed construction, an index for new warehouse buildings, was up 1.5% for the month and 7.6% over 12 months.

The PPI for construction machinery and equipment climbed 1.2% and 5.2%. The PPI for construction materials and components rose 1.1% and 6.2%. Over the past 12 months, increases in PPIs for materials used by different construction segments have differed significantly: highways and streets, 14.6%; other heavy construction, 8.4%; multi-unit residential, 7.6%; nonresidential buildings, 7.3%; and single-unit residential, 7.0%. These differences are attributable to variations in price increases for key materials. For instance, the PPI for diesel fuel, which is most important in highway and other heavy construction, slipped 0.7% in January but jumped 39% over 12 months. Asphalt climbed 2.2% last month and 37% over 12 months. Concrete products went up 2.7% and 9.8%. Plastic construction products climbed 1.1% and 22.5%. Gypsum products were up 2.5% and 19.5%. Steel mill products (including products for other industries) fell 0.2% and 5.4%, but fabricated structural metal products were up 0.1% and 2.0%.

Industrial production at mines, utilities, and factories slipped 0.2% in January, seasonally adjusted, as record warm weather for the month depressed utility output, the Federal Reserve reported. Manufacturing output rose 0.7%, following an upwardly revised gain of 0.5% in December. Since January 2005 manufacturing output has risen 4.5%. The Fed noted, “The index for construction supplies was unchanged for a second consecutive month after three months of large increases.” That index was up 7.1% since January 2005. Capacity utilization in manufacturing moved up to 80.5% of capacity from 80.1% in December (originally estimated at 79.6%), the first times since before the 2001 recession that the figure has exceeded its 1972-2005 average of 79.8%. Sustained high levels of current output and capacity utilization can signal a need to construct more factories.

“Following some modest softening in December, billings at U.S. architecture firms began the new year on a stronger note by edging back up in January,” American Institute of Architects Chief Economist Kermit Baker reported in summarizing the January “Work-on-the-Boards” survey of architectural firms. “Inquiries for new projects also moved up, pointing to even more improvement in business conditions in the months ahead.”

Housing starts vaulted to the highest level since 1973 in January-2,276,000, seasonally adjusted, the government reported. Record warm temperatures and lack of snow cover in many parts of the country enabled builders to keep working. For single-unit starts the January total was 12.8% higher than in December 2005, a colder month than typical for December, and 2.8% higher than in January 2005,. Multi-unit starts were 22% and 9% higher, respectively. Building permits, a reliable indicator of near-future starts, rose 6.8% and 3.8%, respectively. Single-unit permits were up 2.4% and 3.1%, while multi-unit permits were up 24% and 6.2%.

In another sign that homebuilding may not drop off soon, the National Assn. of Home Builders reported that its index of home builders' sentiment remained steady for the third straight month in February. The component gauging builders' perceptions of current market conditions was unchanged from January. The components gauging sales expectations for the next six months and traffic of prospective buyers each declined one point.

Mild January weather evidently helped retail and food services sales, which hopped up 2.3% from December, after seasonal and trading-day adjustments, and 8.8% from January 2005, the Census Bureau reported. Every category rose compared to 2005, although department stores' sales were up only 0.7%, less than inflation. Not all chains benefited, however. Radio Shack announced on Friday that it would close 400-700 stores, plus distribution centers in Charleston, South Carolina, and Southhaven, Mississippi.

Preliminary yearend data on cement, issued on Wednesday by the U.S. Geological Survey, show that imports of hydraulic cement and clinker (which is ground into cement after importation) jumped 25% last year, from 27 million metric tons (mmt) in 2004 to 33.7 mmt in 2005. Canada remained the No. 1 source of imports, supplying, 5.4 mmt, down 6% from 2004. China more than doubled its exports to move into second place, with 4.7 mmt. Imports from Mexico increased 52% to 2.2 mmt. That figure could rise to 3 mmt per year if the U.S. and Mexico complete an agreement-in-principle announced in January that would also lower the antidumping on Mexican cement to $3 per mmt from $26 currently. Signing of the text is reportedly scheduled for early March.