Nonresidential Construction Materials Project Prices Down from a Year Ago

08/23/2012 by Bernard M. Markstein

Overview
An index measuring prices of inputs used in nonresidential construction was down for the third month in a row and down from a year ago. Meanwhile, oil prices have moved higher in recent weeks. This threatens to reverse some of the price declines that have been working through building materials prices the last few months, including the prices used to compile the July Producer Price Index (PPI). In addition to energy products, major categories posting price declines in July included softwood lumber, steel mill products, extruded aluminum rod, and copper and copper products.

Overall, price increases for building materials used in nonresidential construction for the past year have been below general U.S. inflation. For the next several months, building materials prices are likely to rise roughly in line with overall inflation. Better than expected construction activity would put additional upward pressure on building materials prices, pushing them up faster than general inflation.

Construction Materials Inflation
The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) PPI for materials and components used in construction slipped 0.1% in July from June following no change the previous month. The index was up 1.6% on a year-over-year basis, and 8.1% since July 2009. Meanwhile, prices for raw materials used in construction or to produce products used in construction fell 0.2% after rising 0.3% in June. The index was up 2.5% from a year earlier and 5.9% from three years earlier.

An index that measures inputs used in nonresidential construction (excluding capital equipment) fell 0.9% on a not seasonally adjusted (NSA) basis, down for the third month in a row. On a year-over-year basis, the index was down 1.2%.

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
  Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
-0.2 0.3 -0.3 -0.1 0.2 0.4 2.5 2.8 3.3 5.9
Materials and Components for Construction*
(Processed goods)
-0.1 0.0 0.1 0.0 0.2 0.2 1.6 2.2 2.7 8.1
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
-0.7 -0.6 -0.5 -0.6 -0.2 0.4 -0.6 0.5 1.0 13.3
    Inputs to New Construction -0.6 -0.6 -0.5 -0.5 -0.2 0.4 -0.2 0.8 1.3 13.1
        Inputs to Residential Construction -0.4 -0.4 -0.3 -0.4 -0.1 0.3 0.6 1.4 1.9 12.0
        Inputs to Nonresidential Construction -0.9 -0.6 -0.6 -0.7 -0.2 0.4 -1.2 0.2 0.6 NA
            Inputs to Commercial Construction -0.7 -0.5 -0.3 -0.5 -0.1 0.3 -0.5 0.7 1.2 NA
            Inputs to Industrial Construction -0.5 -0.7 -0.5 -0.5 -0.3 0.3 -0.1 0.6 1.1 NA
            Inputs to Heavy Construction -1.1 -0.8 -0.7 -0.9 -0.3 0.5 -1.6 -0.1 0.5 NA
       
    Inputs to Maintenance and Repair -1.0 -0.9 -0.8 -0.9 -0.4 0.3 -2.8 -1.4 -0.7 16.6
        Inputs to Nonresidential Maintenance
        and Repair
-1.1 -1.0 -0.8 -1.0 -0.5 0.3 -3.3 -1.9 -1.2 17.3
        Inputs to Res Maintenance and Repair -0.5 -0.6 -0.5 -0.5 -0.2 0.4 0.0 1.0 1.5 13.5
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction 0.5 0.0 0.3 0.3 0.2 0.3 3.5 4.2 4.2 5.6
New School Building Construction 0.2 0.1 0.1 0.1 0.1 0.2 3.5 4.4 4.3 7.0
New Office Construction 0.0 0.1 0.1 0.1 0.1 0.1 2.4 3.5 3.3 4.1
New Industrial Building Construction 0.1 0.0 -0.1 0.0 0.0 0.1 1.9 3.3 3.3 4.3
       
Other Related Indexes      
PPI Finished Goods* 0.3 0.1 -1.0 -0.2 -0.4 -0.4 0.5 0.7 0.7 12.0
PPI Finished Goods less food and energy* 0.4 0.2 0.2 0.3 0.2 0.2 2.5 2.6 2.7 6.7
CPI Urban Consumer* 0.0 0.0 -0.3 -0.1 -0.1 0.0 1.4 1.7 1.7 6.4
CPI Urban Consumer less food and energy* 0.1 0.2 0.2 0.2 0.2 0.2 2.1 2.2 2.3 4.8
       
Production Index: Construction Supplies* -0.5 -0.6 -1.6 -0.9 -0.5 -0.6 2.7 4.6 5.4 14.9
Retail Sales: Building & Equipment Supplies* 1.0 -2.3 -2.1 -1.2 -2.5 -1.2 3.1 -3.6 7.3 2.1

*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 rose 0.2% (SA) in July after increasing 0.3% in June. They were up 4.3% from a year earlier and 7.6% from June 2009. Meanwhile, construction machinery rental rates slid 0.6% (NSA) after plunging 2.9% in June. On a year-over-year basis, rental rates were also 0.6% lower, and were up only a slight 0.5% from three years earlier. Given that more builders are choosing to rent their equipment the movement in rental prices was a bit of a surprise. However, we expect upward pressure on rental rents to emerge in coming months, resulting in those prices increasing faster than equipment purchase prices.

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
  Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12
Assembled Equipment      
Hand and Edge tools 0.0 0.5 0.0 0.2 0.2 0.0 2.1 2.2 1.4 1.9
Power Hand Tools -0.4 0.0 0.3 -0.1 0.1 0.3 1.1 1.6 1.6 2.6
Appliances* 0.5 0.9 0.5 0.6 0.3 0.1 5.0 5.0 4.5 6.1
Furnaces -0.3 0.2 -0.2 -0.1 0.0 -0.2 2.6 3.6 3.9 4.2
Construction Machinery* 0.2 0.3 0.3 0.3 0.3 0.3 4.3 4.4 4.5 7.6
Construction Machinery Rental (incl. oilfield equip.) -0.6 -2.9 0.0 -1.2 -0.9 0.4 -0.6 1.4 8.0 0.5
Trucks over 14,000 Ibs. GVW 0.6 0.1 0.0 0.2 0.0 0.0 2.8 2.8 2.7 8.4
Metal Doors, Sash and Trim 0.7 0.1 0.2 0.3 0.1 0.1 2.4 2.0 3.2 9.8

*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
Cement prices slipped 0.1% following a 0.5% rise in June. Prices were up 1.0% from a year earlier but 7.1% lower since July 2009. July’s decline may be only a temporary reprieve as cement prices are likely to face upward pressure from rising demand due to more multifamily and other commercial construction over coming months.

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
  Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12
Construction Commodities      
Dimension Stone -0.5 0.1 -0.1 -0.1 0.0 -0.1 1.5 1.7 0.1 4.5
Cement -0.1 0.5 -0.3 0.0 0.6 0.4 1.0 2.1 1.1 -7.1
Construction Sand, Gravel & Crushed Stone* -0.3 0.3 -0.3 -0.1 0.2 0.4 2.0 2.3 2.9 5.2
Softwood Plywood 0.0 1.8 2.2 1.3 1.6 2.6 27.4 24.7 19.8 30.3
Hardwood Lumber 0.1 -0.8 -0.5 -0.4 -0.4 0.0 -2.8 -2.5 -1.6 7.6
Softwood Lumber* -3.7 1.9 5.8 1.2 2.3 2.6 5.9 11.0 10.5 15.9
Other Commodities      
Industrial Natural Gas* 0.1 2.5 -5.4 -1.0 -1.5 -2.6 -17.0 -18.8 -21.2 -18.7
Plastic Resins & Materials -1.1 -2.6 0.6 -1.0 -0.4 0.9 -1.8 -1.5 0.7 19.5
Insulation Materials 3.5 0.2 0.5 1.4 0.0 0.1 8.0 5.0 5.2 16.4
Iron & Steel Scrap -9.0 -12.4 -1.0 -7.4 -5.0 -0.8 -25.7 -18.3 -4.8 40.4
Iron Ore -5.6 1.6 NA NA NA NA 9.2 24.7 22.8 33.0
Copper Ores -2.5 -3.5 -3.9 -3.3 -3.0 -1.9 -23.5 -14.9 -10.2 34.6
Copper Base Scrap* -2.5 -0.6 1.6 -0.5 -1.4 -2.7 -16.9 -10.6 -4.2 45.7

*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
Signaling the end of lower oil related prices, diesel fuel prices reversed their four month decline, jumping 3.1% (SA) in July after plunging 8.8% in June. Diesel prices were still down 9.3% from a year ago, but up 72.1% since July 2009.

Industrial natural gas prices edged up 0.1% (SA) in July after spurting 2.5% higher in June. On a year-over-year basis, they were down 17.0%, and 18.7% lower since July 2009. Until recently, increasing supply has outstripped rising demand putting downward pressure on prices. This trend is now reversing as supply increases appear to be tapering off due to current low prices while demand is rising to take advantage of those same low natural gas prices.

Earlier, lower energy prices are still working their way through the supply system. As a result, plastic resins and materials prices fell 1.1% (NSA) in July after dropping 2.6% in June. The two month decline left prices 1.8% lower than a year ago, although they were up 19.5% from three years earlier.

Asphalt prices fell sharply, down 3.4% (NSA) in July after no change in June. On a year-over-year basis, they were up 7.5%. Since July 2009, asphalt prices increased 50.6%. Asphalt roofing prices jumped 5.4% in July after rising 0.7% in June. On a year-over-year basis, prices were down 3.8%, but were up 4.7% from three years earlier.

Plastic construction products prices fell for the third month in a row, slipping 0.1%, after decreasing 0.4% in June. Prices were up 1.6% from a year earlier, and 10.7% from July 2009. Plastics pipe prices slid 0.7% in July after dropping 1.3% the month before. They were down 1.7% from a year earlier, but 24.1% higher since July 2009. Meanwhile, plastics plumbing fixtures prices were down 0.4% after rising 0.3% in June. Prices were up 1.3% from a year ago and 3.9% from three years ago.

World oil prices have been moving higher of late, putting upward pressure on energy prices once more. There is now additional upward pressure on gasoline prices, especially in the western U.S., due to a recent fire at a major San Francisco Chevron refinery. Bloomberg news has reported that the Chevron plant was operating at 60% of capacity after the fire. The effect of a recent Shell refinery fire also in the San Francisco area on supply is unknown at this time, but appears likely to have only a small impact on the plant’s output. On the positive side, U.S. oil inventories are high, which should keep a lid on oil prices in the near term, barring a major crisis such as blockage of the Strait of Hormuz.

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
  Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12 Jun-12 May-12 Jul-12
Manufactured Materials      
Gypsum Products 1.4 1.1 1.2 1.2 -0.6 0.8 15.7 13.2 13.6 11.3
Petroleum refineries -4.4 -4.5 -4.1 -4.3 -2.6 1.0 -10.6 -6.7 -5.6 61.5
Diesel Fuel* 3.1 -8.8 -1.4 -2.5 -4.9 -3.9 -9.3 -10.7 -0.2 72.1
Asphalt -3.4 0.0 2.1 -0.4 1.8 2.7 7.5 10.5 16.3 50.6
Asphalt paving mixture & block mfg. -0.6 1.2 -0.1 0.2 0.8 0.5 5.0 6.3 5.9 19.7
Asphalt shingle and coating materials mfg. 3.3 0.6 1.6 1.8 1.7 1.0 -2.5 -1.6 -0.3 8.4
Asphalt Roofing 5.4 0.7 1.8 2.6 1.9 1.4 -3.8 -6.4 -4.5 4.7
       
Paint 0.1 -0.1 0.0 0.0 0.0 0.0 11.7 11.7 11.8 14.9
Plastic Construction Products -0.1 -0.4 -0.7 -0.4 -0.2 0.0 1.6 1.9 3.6 10.7
    Plastics Pipe -0.7 -1.3 -1.9 -1.3 -0.6 0.2 -1.7 -2.0 2.0 24.1
    Plumbing Fixtures -0.4 0.3 0.1 0.0 0.3 0.2 1.3 3.4 4.7 3.9
Vitreous Plumbing Fixtures -0.5 0.0 0.4 0.0 0.1 0.1 1.3 2.1 2.7 5.0
Ceramic Tile -3.0 0.5 0.1 -0.8 0.3 -0.1 -2.9 0.1 -0.7 -2.5
Flat Glass 0.5 0.1 0.0 0.2 -0.1 -0.1 0.7 1.4 1.4 0.1
       
Steel Mill Products -2.8 -1.3 -0.9 -1.7 -0.6 -0.4 -5.9 -3.2 -3.0 32.0
Steel Pipe and Tube* -1.3 0.1 -2.6 -1.3 -0.5 -1.6 1.0 2.6 2.6 38.5
Hot rolled bars, plates & structural shapes -2.3 -1.5 -1.6 -1.8 -0.7 -0.4 -6.1 -3.1 -1.5 29.4
Extruded Aluminum rod, bar and other shapes -3.4 -0.6 -1.4 -1.8 -1.3 -0.6 -11.8 -7.2 -7.3 10.8
Architectural Metalwork 0.1 -0.7 0.2 -0.1 -0.1 0.3 0.4 1.0 2.0 6.5
Metal Plumbing Fixtures* 0.1 0.0 0.0 0.0 -0.1 0.0 1.2 1.5 1.8 5.3
Builders’ Hardware -0.1 -0.2 0.6 0.1 0.3 0.3 1.2 1.0 1.4 9.4
Sheet Metal Products 0.0 0.1 -0.2 0.0 -0.1 -0.1 -2.1 -1.6 -1.3 8.7
       
Copper and Copper Products -1.0 -4.4 -2.8 -2.8 -2.8 -1.2 -18.6 -13.6 -8.5 34.8
Copper and Brass Mill Shapes 0.5 -4.1 -1.6 -1.8 -2.7 -1.1 -16.0 -12.6 -8.3 29.5
    Nonferrous Pipe and Tube 0.1 -8.1 -1.2 -3.1 -3.4 -0.5 -22.4 -17.8 -11.0 22.6
       
Building Brick 0.3 0.3 -0.6 0.0 -0.1 -0.2 -3.0 -3.1 -3.3 -5.8
Ready Mix Concrete* 0.3 0.4 -0.7 0.0 -0.1 -0.1 1.9 1.6 1.2 -1.4
Concrete Block & Brick 0.0 0.5 -0.6 0.0 0.1 0.0 1.2 1.2 0.7 1.1
Prestressed Concrete -0.2 -0.4 2.0 0.5 0.3 0.5 0.3 -0.1 1.0 3.2
Precast Concrete Products 0.3 0.1 -0.3 0.0 0.2 0.2 2.2 2.0 2.2 5.6
Concrete Pipe 1.1 -0.3 -0.1 0.2 -0.1 0.2 1.4 0.5 0.6 -2.1
       
Wood Kitchen Cabinets 0.1 0.4 0.0 0.2 0.2 0.4 2.3 2.4 2.0 4.2
Millwork (window, door, cabinet)* 0.2 0.5 -0.3 0.1 0.1 0.1 3.3 3.2 2.9 4.6
Engineered Wood Products -0.9 0.6 2.4 0.7 1.4 1.6 3.7 4.7 3.9 10.1
Laminated Plastics 0.0 0.0 0.3 0.1 0.1 0.1 1.9 2.6 2.6 5.5

*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 fell 2.5% (NSA) in July after sinking 3.5% in June, their fifth consecutive monthly decline. Prices were down 23.5% from a year earlier. Nonetheless, they were still up 34.6% from July 2009.

Copper base scrap prices also fell 2.5% (SA) in July after sliding 0.6% in June. Prices were down 16.9% from July 2011, but up 45.7% from three years earlier.

Prices for copper and copper products dropped 1.0% (NSA) in July, their fourth consecutive monthly decrease, after plunging 4.4% in June. Prices were down 18.6% from July 2011, but up 34.8% from July 2009.

Copper and brass mill shapes prices rose 0.5% in July following three months of decline, including a 4.1% drop in June. On a year-over-year basis, they were down 16.0%, but were up 29.5% from three years earlier. Copper pipe (nonferrous pipe and tube) prices inched up 0.1% in July after plummeting 8.1% in June. They were down 22.4% from a year earlier, but up 22.6% from three years earlier.

Slow growth in the U.S., recession in much of Europe, and slower growth in China and India have kept downward pressure on spot copper prices. In the near term, expect somewhat lower prices for copper products.

Softwood Lumber and Gypsum
Single-family housing construction activity is the major driver of demand for softwood lumber and gypsum products, both of which have suffered since single-family housing construction peaked in 2006. There has been some improvement in the single-family housing market over the last few months, giving some price support for both products.

The PPI for softwood lumber slumped 3.7% (SA) in July, no doubt due to an influx of Canadian imports, after increasing 1.9% in June. On a year-over-year basis, prices rose 5.9%, and increased 15.9% from July 2009.

Recent softwood lumber prices have been high enough to hit trigger points allowing more imports from Canada under the Softwood Lumber Agreement (SLA). The SLA has four tiers to determine the permissible level of exports from Canada to the United States.

The average price for softwood lumber to determine June’s export limit was $321, resulting in tier 2 restrictions. The average price for July’s limit was $343, resulting in tier 3 restrictions. The average price for August’s limit was $323, resulting in tier 2 restrictions. Reed calculates the average price to determine export restrictions for September is $325, which would extend tier 2 restrictions to September Canadian exports.

Late last year, six gypsum producers announced they were raising prices 35% in January of this year. The PPI for gypsum product prices have now increased in seven of the first eight months of the year. The July PPI was up 15.8% from December, less than half of the advertised 35% increase. In July, prices were up 15.7% from July 2011, and 11.3% higher than July 2009. The mild improvement in the single-family housing market may be giving some support to higher gypsum prices, but we remain skeptical that the full 35% increase will prevail anytime soon.

Outlook for Construction Materials Prices
Recent economic reports indicate that the U.S. economy is on a slow, but steady growth path. Europe is struggling with slow growth, with many countries already in recession. The rest of the world should continue to grow, albeit at a slower pace.

The Reed Construction Data forecast still projects rising construction activity, producing modest upward pressure on construction materials prices. As the economy advances at a moderate pace, prices will move roughly in line with general inflation.

Faster than predicted, sustained U.S. economic growth (3% or higher at an annual rate) would accelerate commercial construction activity and push materials price inflation higher than general inflation. This seems unlikely to happen before the end of this year. Similarly, faster than forecasted growth in the rest of the world would add to construction materials price inflation. Stimulative action by some European economies, which is not likely despite growing opposition to German imposed austerity, would have a comparable effect.

Rapidly rising energy prices remain the biggest risk to materials price inflation and a major risk to the health of the world economy. Earlier declines in energy prices are now being reversed, threatening some recent price declines in building materials prices. Moreover, a prolonged spike in oil prices (higher than recently experienced) would hurt consumers and adversely affect the growth of the economy, possibly pushing the U.S. into recession.