Wide differences have appeared in recent weeks in the costs for construction inputs such as fuel, freight, plastics, steel and other metals. Diesel fuel prices have been nearly stable for almost three months. The Energy Information Administration announced that the national average price of on-highway diesel fuel was $2.48 per gallon, 69 cents less than in October, but 49 cents (25%) higher than a year ago. Contractors use diesel fuel to run offroad equipment and construction trucks; they also pay fuel surcharges on deliveries of materials and haulage of dirt and debris.

Apart from the surcharges, “Many large motor carriers, flush from a successful 2005, said they expected the combination of strong freight demand and a robust economy to push rates up between 4% and 6% this year, marking the third straight year of increases,” the trucking newspaper Transport Topics (link below) reported on February 7. In contrast, the price of natural gas futures has fallen almost continuously in that span, dropping to a six-month low of less than half the record set in early December. Natural gas is the principal feedstock for polyvinyl chloride (PVC) pipe, insulation, roofing materials, and membranes and is used as a heat source for glass, brick and other manufacturing.

Copper futures prices have risen almost without interruption for the past four years, rising from about 60 cents a pound at the end of the recession in late 2001 to more than $2.25 this month. These prices show up in the cost of wiring, piping, and brass fixtures. Futures prices for aluminum, used in architectural panels, rose from less than 80 cents per pound last summer to more than $1.20 before retreating slightly in the past week.

“Demand for steel has been strong across all industry and consumer segments, keeping domestic prices both elevated and stable in recent months in the face of global pricing that is far lower than inside the United States, say steel industry executives” quoted by Gary Rosenberger of Econoplay.com (info@econoplay.com, link below). “The strength of demand is broad-based and cuts across all residential and nonresidential construction, consumer goods, and capital goods….Karl Almstead, vice president of pre-construction management at Turner Construction Co. in New York City, said his latest quarterly construciton cost index offered mixed signals on steel pricing. 'Steel prices are stable, but that is in direct conflict with the things going on in the steel industry globally,' he observed. Almstead described a series of competing events-strong demand, low inventories, and industry consolidation exerting upward price pressures, but Chinese production likely to pull prices down.” A “metals chartbook,” tracing the five-year history of several commodities prices and inventories, was posted yesterday with an economic commentary by Wachovia economist Jason Schenker (link below).

Demand from the hurricane zone for materials for reconstruction still seems to be minimal because of slow recovery. The Minerals Management Service of the Interior Department (link below) has switched from daily to biweekly updates on offshore production because of slow changes. As of February 8, 24% of oil production and 16% of natural gas production from the Gulf of Mexico was still shut in, scarcely less than on January 25. Contractors and others report there is still greatly reduced population, a lack of electricity or of functioning street lights and traffic lights in large parts of New Orleans, and much debris-clearing and demolition yet to be done.

The Bureau of Labor Statistics reported that in the fourth quarter, the New Orleans-Metairie-Kenner metro area was third (after the much larger Chicago and New York areas) in the number of workers experiencing extended mass layoffs (events involving more than 50 workers for more than 30 days at a single establishment or permanent location). Louisiana and Mississippi experienced 358 extended mass layoff events among private employers, totaling 56,000 workers, plus dozens more among state and local government agencies. FEMA reported on January 27 that Katrina and Rita relief aid applications had been filed by more than 2.5 million persons in every state, including 350,000 outside Louisiana, Texas and Mississippi.

“Builder confidence in the multifamily rental market surged in the fourth quarter of 2005,” the National Assn. of Home Builders (NAHB) reported on Thursday, based on its quarterly nationwide survey of multifamily builders and property owners. “All classes of apartments exhibited substantially greater demand [compared to the fourth quarter of 2004.] 'Our survey of builders indicates such positive trends should continue over the next six months,' said NAHB Chief Economist Dave Seiders….builders and developers see a continuing strong market for new apartments, with lower-rent apartments the strongest…The index that tracks for-sale multifamily supply fell” since the fourth quarter of 2004.

The Federal Reserve reported that its January survey of senior lending officers at large banks found little change since the October survey in demand for commercial real estate loans. “This year's responses suggest a considerable easing in the terms on such loans…Between 25 and 30% of domestic respondents…indicated that they anticipate that the quality of their loans…will deteriorate somewhat in 2006.”

Links