The PPI for inputs to construction industries rose 0.4% for the month and 4.5% over 12 months. Although higher than the finished goods PPI, the 12-month increase was the mildest for construction materials since the year ending in September 2010.

The producer price index for finished goods climbed 0.3%, not seasonally adjusted (0.1%, seasonally adjusted), from December to January and 4.1% year-over-year, the Bureau of Labor Statistics reported Feb. 16. The PPI for inputs to construction industries - a weighted average of the cost of materials used in every type of construction, plus items consumed by contractors, such as diesel fuel and tires - rose 0.4% for the month and 4.5% over 12 months. Although higher than the finished goods PPI, the 12-month increase was the mildest for construction materials since the year ending in September 2010.

PPIs for new nonresidential buildings had similar increases: industrial buildings, 0.3% for the month and 3.5% over 12 months; offices, 0.6% and 4%; warehouses, 0.5% and 4.2%; and schools, 0.6% and 4.6%. PPIs for new, repair and maintenance work by nonresidential building subcontractors varied more: concrete contractors, -0.2% and 1.3%; electrical, 0.2% and 3.2%; plumbing, 0.9% and 4.4%; and roofing, 0.7% and 4.6%.

The largest annual increases in PPIs for materials used in construction were for diesel fuel, 3.2% and 19%; truck and offroad tires, 0.2% and 14%; asphalt paving mixtures and blocks, 1.4% and 9.7%; steel mill products, 1.3% and 9.4%; insulation materials, 2.9% and 7.9%; and gypsum products, 5.9% and 7.6%. At the other extreme were copper and brass mill shapes, -0.7% and -13%; lumber and plywood, 0.2% and -2.2%; and aluminum mill shapes, -0.8% and -1.7%. Concrete products rose 0.7% and 1.4%.

Price trends since data were gathered for the PPI report in mid-January have been mixed. Retail on-highway diesel prices have climbed 9.5 cents per gallon in the past three weeks and were 41 cents (12%) higher than a year ago, the Energy Information Administration reported Feb. 13. Suppliers of polyvinyl chloride (PVC) and other plastic plumbing products have announced 6% to 10% price increases to take effect in the next two weeks. But there have been selective steel price cuts.

Housing starts, factory output

Housing starts rose 1.5% in January, seasonally adjusted, from an upwardly revised December total, and were 9.9% higher than in January 2011, the Census Bureau reported Feb. 16. Single-family starts dipped 1% for the month but rose 16% year-over-year, while multifamily starts rose 8.5% in January but dropped 4% over 12 months. Weather may have been a factor: many regions experienced much warmer and drier conditions than normal in December 2011 and January 2012, and worse-than-normal weather a year earlier.

Building permits, an indicator of near-term starts, rose 0.7% for the month and 19% over the year-ago month, with single-family permits up 0.9% and 6.2% and multifamily up 0.4% and 55%. Multifamily permits and starts tend to be volatile from month to month, but a comparison of the latest three-month average with the prior three months and the year-ago period shows strong upward trends in both permits and starts.

Industrial production in manufacturing increased 0.7% seasonally adjusted, in January, after jumping 1.5% in December, and was up 4.5% from January 2011, the Federal Reserve reported Feb. 15. The Fed noted, “The output of construction supplies fell 0.4% in January following a gain of 3% in December. In January, the output of construction supplies was 5.3% above its level of a year earlier but remained well below its pre-recession peak.”

Capacity utilization in manufacturing rose to 77% in January from an upwardly revised 76.5% in December. The January level was the highest since April 2008 but was still below the 1972-2011 average of 78.9%. Rising output and capacity utilization over time can signal increased demand for manufacturing construction.

A sharp drop in natural-gas prices (down 35% in the past year and 80% from the peak in 2008), along with the prospect of further declines, has multiple implications for construction.

“Thanks largely to natural gas money, Wyoming invested millions of dollars in upgrading roads and schools, while socking away more than $1 billion in its rainy day fund,” the online newsletter Stateline.org reported Feb. 17. “But the boom is over for Wyoming, at least for now. A precipitous drop in the price of natural gas has sent state lawmakers scrambling to make budget cuts….New Mexico and Texas also are seeing drops in revenues related to natural gas, although the pain there, as in Oklahoma, is compensated by surging oil revenues….An era of cheap natural gas may also pose a challenge to state efforts to boost wind, solar and nuclear power, since natural gas is relatively clean burning for a fossil fuel….

“While drilling is down in some places, however, it is up in others. Some energy companies are shifting away from drilling for so-called ‘dry’ natural gas in order to increase production of liquid natural gas. This ‘wet’ gas contains chemicals such as propane, helium and butane, which can be sold on their own. Because of that extra value, experts expect drilling will only increase in Ohio, home to the mostly wet Utica shale formation.

“That shift could come at the expense of Pennsylvania, whose Marcellus formation yields mostly dry gas within the state’s borders. [In Texas,] low gas prices have led to low prices for wholesale electricity. And that is making utility companies reluctant to build infrastructure that would help Texas meet the electricity demands of its growing population.”