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Nonresidential Construction Materials Project Inflation Accelerated in September

0 6748 Market Intelligence

The pace of price increases for inputs used in nonresidential construction picked up speed in September over August. Higher oil prices were the primary source for the increase. Nonetheless, prices for a few major items retreated in September. These included prices for gypsum products, asphalt, and prestressed concrete.

Overview
The pace of price increases for inputs used in nonresidential construction picked up speed in September over August. Higher oil prices were the primary source for the increase. Nonetheless, prices for a few major items retreated in September. These included prices for gypsum products, asphalt, and prestressed concrete.

The outlook is for building materials prices to rise roughly in line with overall inflation. Faster than expected growth would mean more rapid building materials price inflation.

Construction Materials Inflation
The Producer Price Index (PPI) for materials and components used in construction edged higher for the second month in a row, rising 0.3% on a seasonally adjusted (SA) basis in September, after advancing 0.2% in August according to a report from the Bureau of Labor Statistics (BLS). The index was up 2.1% on a not seasonally adjusted (NSA) year-over-year basis, and 8.5% since September 2009. At the same time, prices for raw materials used in construction or to produce products used in construction rose 0.8% after declining 0.2% in August. The index was 3.2% higher than September 2011 and 6.4% higher than September 2009.

An index that measures inputs used in nonresidential construction (excluding capital equipment) jumped 1.2% (NSA) in September following a 1.0% increase in August. This left the index 1.6% higher than September 2011.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
0.8 -0.2 -0.2 0.1 0.1 0.1 3.2 2.4 2.5 6.4
Materials and Components for Construction*
(Processed goods)
0.3 0.2 -0.1 0.1 0.0 0.0 2.1 1.8 1.6 8.5
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
0.9 0.9 -0.7 0.4 -0.2 -0.6 1.7 1.0 -0.6 14.4
    Inputs to New Construction 0.9 0.8 -0.6 0.4 -0.1 -0.5 2.0 1.3 -0.2 14.3
        Inputs to Residential Construction 0.7 0.7 -0.4 0.4 0.0 -0.4 2.3 1.9 0.6 13.0
        Inputs to Nonresidential Construction 1.2 1.0 -0.9 0.4 -0.2 -0.7 1.6 0.7 -1.2 NA
            Inputs to Commercial Construction 0.8 0.7 -0.7 0.2 -0.2 -0.5 1.4 0.7 -0.5 NA
            Inputs to Industrial Construction 0.8 0.8 -0.5 0.4 -0.1 -0.5 1.8 1.2 -0.1 NA
            Inputs to Heavy Construction 1.3 1.3 -1.1 0.5 -0.2 -0.8 1.5 0.6 -1.6 NA
       
    Inputs to Maintenance and Repair 1.2 0.7 -1.0 0.3 -0.4 -0.9 -0.3 -1.3 -2.8 15.8
        Inputs to Nonresidential Maintenance
        and Repair
1.1 0.7 -1.1 0.2 -0.5 -0.9 -0.8 -1.8 -3.3 16.0
        Inputs to Res Maintenance and Repair 1.0 0.9 -0.5 0.5 -0.1 -0.5 2.4 1.7 0.0 14.9
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.0 0.3 0.5 0.3 0.2 0.1 3.8 3.8 3.5 6.3
New School Building Construction -0.1 -0.1 0.2 0.0 0.0 0.0 3.1 3.1 3.5 7.5
New Office Construction 0.0 0.0 0.0 0.0 0.0 0.0 2.4 2.4 2.4 4.5
New Industrial Building Construction -0.2 0.0 0.1 0.0 -0.1 -0.1 1.9 2.0 1.9 4.5
       
Other Related Indexes      
PPI Finished Goods* 1.1 1.7 0.3 1.0 0.7 -0.2 2.1 2.0 0.5 13.6
PPI Finished Goods less food and energy* 0.0 0.2 0.4 0.2 0.3 0.3 2.3 2.5 2.5 6.8
CPI Urban Consumer* 0.6 0.6 0.0 0.4 0.2 -0.1 2.0 1.7 1.4 7.1
CPI Urban Consumer less food and energy* 0.1 0.1 0.1 0.1 0.1 0.2 2.0 1.9 2.1 4.8
       
Production Index: Construction Supplies* 1.3 0.1 -0.4 0.4 -0.3 -0.9 5.0 3.6 2.7 18.2
Retail Sales: Building & Equipment Supplies* 1.1 1.9 1.7 1.6 0.5 -0.9 -0.7 2.9 3.0 6.4

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics; Production Index - Federal Reserve Board; Retail Sales - Census Bureau

Construction machinery prices slipped 0.1% (SA) in September following no change in August. They were 3.0% higher than September 2011 and 8.2% higher than September 2009. Construction machinery rental rates decreased 0.1% (NSA) after rising 0.2% in August. On a year-over-year basis, rental rates were 2.4% lower. Since September 2009, they increased 0.8%.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12
Assembled Equipment      
Hand and Edge tools 0.3 -0.8 0.0 -0.2 0.0 0.2 1.2 1.2 2.1 1.6
Power Hand Tools 0.1 0.0 -0.4 -0.1 0.0 0.0 1.2 1.2 1.1 2.7
Appliances* 0.3 0.1 0.5 0.3 0.2 0.3 5.1 5.1 5.0 6.9
Furnaces -0.5 0.2 -0.3 -0.2 0.0 -0.1 1.8 2.7 2.6 4.2
Construction Machinery* -0.1 0.0 0.2 0.0 0.2 0.3 3.0 3.9 4.3 8.2
Construction Machinery Rental (incl. oilfield equip.) -0.1 0.2 -0.6 -0.2 -0.1 0.0 -2.4 -0.2 -0.6 0.8
Trucks over 14,000 Ibs. GVW -0.5 -0.1 0.6 0.0 0.0 0.1 2.1 2.7 2.8 6.9
Metal Doors, Sash and Trim 0.0 -0.3 0.7 0.1 0.2 0.4 2.1 2.1 2.4 9.6

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Cement and Concrete
For the third month in a row, cement prices fell, down 0.1% in September, after decreasing 0.5% in August. Cement prices were 0.3% higher than a year earlier but were 6.7% lower than three years earlier.

Prestressed concrete products prices plunged 2.7% after surging 1.8% higher in August. On a year-over-year basis, prices were down 0.4%, while they were up 1.5% from three years earlier. Precast concrete products prices edged 0.1% higher in September after falling 1.1% the previous month. Prices were up 1.7% from September 2011 and were up 4.8% from September 2009.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12
Construction Commodities      
Dimension Stone 1.0 0.0 -0.5 0.2 -0.2 -0.1 2.0 0.8 1.5 5.1
Cement -0.1 -0.5 -0.1 -0.2 -0.1 0.2 0.3 0.8 1.0 -6.7
Construction Sand, Gravel & Crushed Stone* 0.9 -0.2 -0.3 0.1 0.1 0.1 2.9 2.0 2.0 5.8
Softwood Plywood 2.9 0.6 0.0 1.2 0.8 0.8 27.0 27.3 27.4 29.1
Hardwood Lumber -0.5 1.9 0.1 0.5 0.5 -0.4 -0.9 -0.9 -2.8 7.2
Softwood Lumber* 2.6 3.4 -3.7 0.8 0.4 1.3 11.8 7.9 5.9 21.6
Other Commodities      
Industrial Natural Gas* 2.0 2.8 0.1 1.6 1.6 -1.1 -13.7 -14.9 -17.0 -12.0
Plastic Resins & Materials 0.3 0.8 -1.1 0.0 -0.6 -1.0 -0.1 0.2 -1.8 19.7
Insulation Materials -1.4 0.0 3.5 0.7 1.2 1.3 5.6 7.1 8.0 15.7
Iron & Steel Scrap -0.3 9.0 -9.0 -0.4 -4.9 -7.5 -19.5 -18.7 -25.7 28.3
Iron Ore -1.8 -2.3 -5.6 -3.3 -1.2 -1.4 4.7 6.7 9.2 27.6
Copper Ores 0.7 2.1 -2.5 0.1 -0.4 -2.7 -6.5 -15.1 -23.5 22.5
Copper Base Scrap* 7.0 -1.9 -2.5 0.8 -1.4 -0.5 -5.7 -13.3 -16.9 31.4

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Energy and Related Products
Diesel fuel prices skyrocketed 9.2% (SA) in September after soaring 4.9% in August. September marked the third month of sharp increases following four months of significant price declines (March through June). This has left diesel prices 7.5% (NSA) higher than they were in September 2011 and an even more painful 76.9% higher than September 2009.

Industrial natural gas prices continued their recent upward trek, advancing 2.0% (SA) in September after climbing 2.8% in August. Although September marked the fourth consecutive monthly increase, previous price declines left industrial natural gas prices 13.7% lower than a year earlier and 12.0% lower than three years earlier. The recent price increase was a result of natural gas demand rising faster than supply following a long period in which the reverse was true. Natural gas prices will continue to increase over the next few months while remaining a relative bargain to oil.

Plastic resins and materials prices inched up 0.3% (NSA) in September after rising 0.8% in August. Prices were essentially unchanged from a year ago (-0.1%), but were 19.7% higher than three years ago.

Asphalt prices plummeted 2.7% (NSA) in September after dropping a slightly larger 2.8% in August. In spite of four months of declines, three of them close to 3%, asphalt prices were still 5.1% higher than they were in September 2011 and were 46.4% higher than they were in September 2009. At the same time, asphalt roofing prices rose 0.3% in September after falling 1.8% in August. Prices were down 3.9% from a year earlier but increased 4.1% from three years earlier.

Plastic construction products prices rose 0.8% (NSA) in September following no change the previous month. Prices were 2.3% higher than a year ago, and 10.9% higher than three years ago. Plastics pipe prices jumped 1.2% in September after edging down 0.1% in August. They rose 1.3% from September 2011 and stood 20.2% higher than their September 2009 level. However, plastics plumbing fixtures prices fell 0.3% following a 0.9% increase in August. Prices were 1.7% higher than September 2011 and 4.9% higher than September 2009.

Oil prices bottomed out in late June, rose until mid-September, and have since fallen a bit. Gasoline prices followed a similar trajectory, but lagged a few weeks at the beginning, bottoming in mid-June. However, they peaked a bit ahead of oil prices in early September. Refinery fires in the San Francisco area and at a major refinery in Venezuela added upward pressure to gasoline prices. California, in particular, was hard hit. Weekly unleaded gas prices increased 14% from their recent cycle lows to their recent peaks for the United States and 26% for California. Californians are still feeling the pain. Although gasoline prices as of the end of October were down 14% from their recent peak, compared to 9% for the U.S., they were still up 7% from their recent low, compared to 4% for the U.S. Nonetheless, the recent downward trajectory for energy prices should limit or reverse some of the price increases from energy related products.

US Construction-Related Price Indexes

  Percent Change
  Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
  Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12 Aug-12 Jul-12 Sep-12
Manufactured Materials      
Gypsum Products -1.3 0.3 1.4 0.1 0.8 1.0 17.9 17.8 15.7 10.4
Petroleum refineries 5.9 6.9 -4.4 2.7 -0.8 -4.3 4.0 0.0 -10.6 69.8
Diesel Fuel* 9.2 4.9 3.1 5.8 -0.3 -2.5 7.5 5.2 -9.3 76.9
Asphalt -2.7 -2.8 -3.4 -3.0 -2.2 -0.4 5.1 2.5 7.5 46.4
Asphalt paving mixture & block mfg. -0.8 -0.5 -0.6 -0.6 -0.1 0.0 3.7 4.7 5.0 17.6
Asphalt shingle and coating materials mfg. 0.3 -1.4 3.3 0.7 0.4 1.6 -2.9 -3.9 -2.5 8.3
Asphalt Roofing 0.3 -1.8 5.4 1.2 0.6 2.2 -3.9 -5.0 -3.8 4.1
       
Paint 0.0 0.0 0.1 0.0 0.0 0.0 11.4 11.7 11.7 14.9
Plastic Construction Products 0.8 0.0 -0.1 0.2 -0.3 -0.3 2.3 1.7 1.6 10.9
    Plastics Pipe 1.2 -0.1 -0.7 0.1 -1.4 -1.1 1.3 0.6 -1.7 20.2
    Plumbing Fixtures -0.3 0.9 -0.4 0.1 0.3 0.0 1.7 2.2 1.3 4.9
Vitreous Plumbing Fixtures NA NA -0.5 NA NA 0.0 0.3 NA 1.3 4.0
Ceramic Tile -1.6 1.4 -3.0 -1.1 -0.5 -0.8 -2.5 -1.8 -2.9 -3.7
Flat Glass 1.0 0.4 0.5 0.6 0.2 0.2 2.3 0.8 0.7 1.6
       
Steel Mill Products 1.0 -2.5 -2.8 -1.5 -2.1 -1.5 -7.1 -8.2 -5.9 20.6
Steel Pipe and Tube* -2.1 -1.9 -1.3 -1.8 -0.9 -0.9 -3.4 -0.8 1.0 28.7
Hot rolled bars, plates & structural shapes 0.8 -3.3 -2.3 -1.6 -1.7 -1.2 -9.1 -9.9 -6.1 20.5
Extruded Aluminum rod, bar and other shapes -0.6 -0.2 -3.4 -1.4 -1.4 -1.8 -10.1 -11.4 -11.8 5.7
Architectural Metalwork -0.2 1.2 0.1 0.4 0.4 -0.1 1.4 1.8 0.4 7.7
Metal Plumbing Fixtures* 0.5 0.1 0.1 0.2 0.1 0.0 1.6 1.2 1.2 5.8
Builders’ Hardware 0.0 -0.1 -0.1 -0.1 -0.1 0.0 -0.6 -0.6 1.2 8.5
Sheet Metal Products 0.3 -0.2 0.0 0.0 -0.3 -0.1 -2.3 -2.5 -2.1 8.1
       
Copper and Copper Products 2.3 0.1 -1.0 0.5 -1.6 -2.3 -8.7 -14.4 -18.6 18.4
Copper and Brass Mill Shapes 3.6 -1.0 0.5 1.0 -1.7 -1.9 -10.3 -14.0 -16.0 8.3
    Nonferrous Pipe and Tube 4.7 -0.7 0.1 1.4 -3.1 -3.2 -17.0 -21.1 -22.4 5.2
       
Building Brick -0.1 0.1 0.3 0.1 0.1 0.0 -2.4 -2.7 -3.0 -5.8
Ready Mix Concrete* 0.3 0.8 0.3 0.5 0.2 -0.1 2.7 2.5 1.9 0.2
Concrete Block & Brick 0.0 0.1 0.0 0.0 0.1 0.1 1.2 1.3 1.2 1.3
Prestressed Concrete -2.7 1.8 -0.2 -0.4 1.1 0.4 -0.4 2.4 0.3 1.5
Precast Concrete Products 0.1 -1.1 0.3 -0.3 -0.3 0.1 1.7 1.0 2.2 4.8
Concrete Pipe 0.4 0.4 1.1 0.6 0.1 0.3 2.3 2.0 1.4 3.5
       
Wood Kitchen Cabinets 0.0 0.1 0.1 0.1 0.2 0.2 2.3 2.3 2.3 5.1
Millwork (window, door, cabinet)* -0.2 0.3 0.2 0.1 0.3 0.2 3.2 3.3 3.3 5.0
Engineered Wood Products 2.8 1.2 -0.9 1.0 0.3 0.6 8.8 6.2 3.7 13.7
Laminated Plastics 0.0 1.0 0.0 0.3 0.3 0.1 1.4 2.9 1.9 6.5

*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) - Bureau of Labor Statistics

Copper and Copper Products
Copper ores prices rose 0.7% (NSA) in September after increasing 2.1% in August. Nonetheless, prices were down 6.5% from September 2011. Prices were 22.5% higher than September 2009.

Copper base scrap prices surged 7.0% (SA) in September after dropping 1.9% in August. Prices were 5.7% lower than September 2011, but were up 31.4% from September 2009.

Prices for copper and copper products increased 2.3% (NSA) in September after inching up 0.1% in August. Prices were 8.7% lower than September 2011, but were 18.4% higher than September 2009.

Copper and brass mill shapes prices jumped 3.6% in September after declining 1.0% in August. Despite the increase, prices were 10.3% lower than they were in September 2011, but were up 8.3% from September 2009. Copper pipe (nonferrous pipe and tube) prices soared 4.7% in September after falling 0.7% in August. Prices were 17.0% lower than September 2011, but were 5.2% higher than September 2009.

Other Metals
September steel mill products prices ended six consecutive months of decline, increasing 1.0%. Prices were 7.1% lower than September 2011, but were 20.6% higher than September 2009. Hot rolled bars, plates, and structural shapes prices rose 0.8% after plunging 3.3% in August. Prices were down 9.1% from September 2011, but were up 20.5% from September 2009.

Extruded aluminum rod, bar, and other shapes prices fell 0.6% in September, their sixth consecutive monthly decline. Prices were 10.1% lower than September 2011, but were 5.7% higher than September 2009.

Softwood Lumber and Gypsum
Demand for softwood lumber and gypsum products is largely determined by single-family housing construction. The single-family housing market is now in a clear recovery mode, pushing demand for these products higher.

The PPI for softwood lumber continued its recent upward movement, climbing 2.6% (SA) in September after jumping 3.4% in August. Prices were up 11.8% from a year earlier, and were up 21.6% from three years earlier.

Higher softwood lumber prices have permitted more Canadian imports under the Softwood Lumber Agreement (SLA). How much softwood lumber Canada can export to the U.S. each month under the SLA is based on the average price of softwood lumber over a specified four week period. Where that average price falls within a four tier regime determines the level of exports permitted and related export fees (which are collected and retained by the Canadian government). The categories, from most restrictive to least restrictive and the related prices determining which category is in force for the month, are as follows.

  • The first category is for an average price of $315 per thousand board feet or lower
  • The second category is for an average price of $316 to $335
  • The third category is for an average price of $336 to $355
  • The fourth category, is for on an average price of $356 or higher and eliminates all restrictions on Canadian softwood lumber exports to the United States

The average price for July’s category was $343, resulting in tier 3 restrictions. The average price for August and September ($323 and $328, respectively) resulted in tier 2 restrictions. The average price for October was $341, which resulted in tier 3 restrictions and sent prices lower as Canadian softwood imports increased. The lower prices produced an average price of $326 for November, resulting in tier 2 restrictions for the month.

Last year, six gypsum producers sent letters indicating they would raise prices 35% in January 2012. But the September PPI was up “only” 14.6% from December, less than half of the advertised 35% increase. Further, prices were up 17.9% from a year earlier, and 10.4% higher than three years earlier.

Although only partially successful with their price increase this year, several gypsum producers have announced price increases of 25% to 30% effective January 2013. It remains to be seen how successful they will be with this price increase. We must admit to some skepticism.

Outlook for Construction Materials Prices
The U.S. economy is improving, although growth is slower than would be desirable at this stage of the expansion. Most European economies are struggling. Many of their problems are exacerbated by self inflicted wounds. Slow growth in the U.S. and Europe is acting as a drag on economic growth for the rest of the world.

Nonetheless, the Reed Construction Data forecast is for better construction activity over the next several quarters, which will put upward pressure on construction materials prices. The outlook is for building materials prices to increase at roughly the same pace or a little faster than overall inflation.

If the U.S. economy grows at a faster than expected rate (3% or higher at an annual rate) for several quarters, the result would be higher commercial construction activity and greater materials price inflation. Faster than forecasted growth in the rest of the world would also send construction materials prices higher than anticipated. Significantly higher energy prices for a sustained period would produce faster escalating building materials prices as well.

by Bernie Markstein

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