The producer price index (PPI) for finished goods rose 0.1% in July, seasonally adjusted, the Bureau of Labor Statistics (BLS) reported, as the steepest drop in food prices in a decade (-1.6%) virtually canceled out the impact of a 2.3% jump in energy prices. The “core” index, which omits food and energy, ticked up just 0.1%. Over the past 12 months, the overall PPI rose 4% but the core PPI climbed only 1.7%, suggesting that an acceleration of consumer-level inflation is not imminent.
The figures for construction were mixed. The intermediate goods index for materials and components for construction slowed for the third month in a row, moving up 0.2% in July, compared gains of 0.7% in June, 1.5% in May, and 1.7% in April. Prices for steel mill products increased 1.9%, after surging 6.2% in the preceding month; the rise since July 2003 totaled 44%, highest of any intermediate-goods PPI in the published table.
The PPI for cement edged up 0.2% for the month and 2.2% over 12 months; evidently, cement price increases that have been announced have either not taken effect yet or do not affect all regions. Among crude materials, the index for construction inputs moved up 0.9% in July after gaining 1.4% in June. The intermediate- and crude-goods construction indexes have each risen 9% over the past 12 months. Ominously for future structural steel prices, the index for iron and steel scrap soared 32% in July, after falling 10% in April, 16% in May, and rising just 0.6% in June. The index nearly doubled (up 99.2%) since July 2003. Among capital equipment indexes, the PPI for construction machinery and equipment climbed 1.1% for the month and 3.6% for the past 12.
The July figures on steel prices may already be outdated. Market News International reported, “Hot-rolled sheet, a benchmark product, has tripled to about $800 a ton (including surcharges) after having sunk to around $260 a ton early in 2003, officials say….It is clearly a seller's market, with allocation now routine and end-users complaining that contract prices are often ignored by producers.”
Cement supplies remain very uneven geographically. The Portland Cement Assn. (PCA) posted a revised map showing states with shortages (www.cement.org) and observed, “Since a June survey by PCA Economic Research reporting 23 states with shortage conditions or tight supplies, six states have been added (Arizona, Delaware, Missouri, New Jersey, Pennsylvania, and Utah).
Shortage conditions in the North Central region (Iowa, Minnesota, Nebraska, North Dakota, and South Dakota) has eased somewhat as plant specific production troubles have been resolved. Wet weather along the east coast has dampened construction activity; as a result, Alabama, Georgia, and South Carolina have witnessed at least a temporary easing in shortage conditions. In total, 29 states are affected by cement shortages.”
In the past 10 days, the Wall Street Journal, USA Today, PBS's “Nightly Business Report,” Market News, and media covering Colorado, metro Phoenix, Milwaukee, Fresno, and southern Oregon have reported price increases and/or shortages, while Houston has enough cement but insufficient aggregate to make concrete because the Union Pacific has cut rail deliveries.
Retail and food services sales rose 0.7% in July, adjusted for seasonal changes but not prices, the Census Bureau reported. The decline in June was revised to -0.5% from an initial estimate of -1.1%. Big swings in auto sales and in gasoline and food prices tend to distort month-to-month comparisons. For the first seven months of 2004, retail and food services sales are up 8.3% from the same period in 2003, indicating consumers are still spending at a rate far ahead of inflation.
The Federal Open Market Committee voted to raise its target for short-term interest rates by .25%, as expected. The average rate for new one-year adjustable rate mortgages remained stable this week at 4.08%, while the average for new 30-year fixed mortgages fell to a four-month low of 5.85%, Freddie Mac reported, nearly half a point below the peak of May and June. The two quarter-point increases in short-term rates should gradually slow short-term borrowing, for instance through home-equity lines and auto leases, while home buying will benefit from the falling long-term rates.
The rate of private-industry job openings was flat in June at 2.4 per 100 employees, seasonally adjusted, BLS reported. But the rate slowed sharply in construction, to 1.2% in June from 1.5% in May and April and 1.6% in March. Construction hiring fell even more, to 5.8% in June from 6.4% in March. The biggest construction drop was in total separations (quits, retirements, involuntary separations, and other), to 5.3% in June from a high of 6.4% in January.
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