Nonresidential Construction Materials Projects Price Inflation Accelerates in February

04/09/2013 by Bernard M. Markstein

Overview
Prices for inputs used in nonresidential construction moved higher for the second month in a row following three months of decline. Sharp price increases for cement, energy, energy-related products, and HVAC equipment were among the main factors sending the index higher.

Prices for many inputs to construction are rising faster as higher energy prices work their way through the system. At the same time, building materials prices are increasing due to rising demand from the recovering residential construction sector and repair activity from Hurricane Sandy. For a number of products supplies are limited due to producers shuttering plants because of the low level of construction activity over the past several years. There is some limited counter pressure on prices due to slower growth in nonresidential construction as plans for federal construction projects are throttled back due to budget cuts (including the current sequestration).

Over the course of this year, expect prices to rise roughly in line with or slightly faster than overall inflation. Better than expected growth would translate into even greater building materials price inflation.

Construction Materials Inflation
The Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) for materials and components used in construction was 0.3% higher on a seasonally adjusted (SA) basis in February after increasing 0.5% in January. The index was 2.4% higher on a not seasonally adjusted (NSA) year-over-year basis and was 9.0% higher since February 2010. Meanwhile, prices for raw materials used in construction or to produce products used in construction also increased 0.3% after inching up 0.1% in January. The index increased 2.3% from February 2012 and increased 6.7% from February 2010.

An index that measures inputs used in nonresidential construction (excluding capital equipment) surged 1.3% (NSA) in February after rising 0.6% in January. The index was 1.7% higher than in February 2012.

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
  Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13
Composite Indexes (Exclude capital equipment)      
Construction Materials*
(Unprocessed materials)
0.3 0.1 0.2 0.2 0.0 0.2 2.3 2.8 2.7 6.7
Materials and Components for Construction*
(Processed goods)
0.3 0.5 0.2 0.3 0.3 0.2 2.4 2.7 2.7 9.0
       
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
1.3 0.7 -0.1 0.6 -0.2 -0.5 2.0 1.3 1.3 12.9
    Inputs to New Construction 1.2 0.7 -0.1 0.6 -0.2 -0.5 2.1 1.5 1.5 12.9
        Inputs to Residential Construction 1.1 0.7 0.1 0.6 0.0 -0.3 2.5 2.1 2.0 12.4
        Inputs to Nonresidential Construction 1.3 0.6 -0.3 0.6 -0.3 -0.7 1.7 0.8 0.8 NA
            Inputs to Commercial Construction 0.8 0.6 -0.1 0.4 -0.1 -0.4 1.6 1.3 1.1 NA
            Inputs to Industrial Construction 0.9 0.4 -0.2 0.4 -0.2 -0.5 1.2 0.6 0.8 NA
            Inputs to Heavy Construction 1.5 0.6 -0.3 0.6 -0.5 -0.8 1.6 0.6 0.7 NA
       
    Inputs to Maintenance and Repair 1.5 0.7 -0.3 0.6 -0.3 -0.6 1.2 0.4 0.0 12.7
        Inputs to Nonresidential Maintenance
        and Repair
1.4 0.7 -0.3 0.6 -0.3 -0.6 1.0 0.2 -0.2 12.4
        Inputs to Res Maintenance and Repair 1.4 0.7 0.0 0.7 -0.2 -0.6 2.4 1.6 1.7 13.9
       
  (Indexes include installation and overhead)      
New Warehouse Building Construction -0.4 1.0 0.0 0.2 0.3 0.1 2.5 2.9 2.6 7.8
New School Building Construction 0.3 0.3 0.0 0.2 0.0 0.0 1.2 0.9 1.1 7.2
New Office Construction 0.0 0.4 0.0 0.1 0.2 0.1 0.9 0.9 1.3 5.3
New Industrial Building Construction 0.0 0.5 0.0 0.2 0.2 0.2 1.3 1.3 1.4 5.6
New Health Care Building Construction 0.0 0.6 -0.1 0.2 0.1 0.0 NA NA NA NA
       
Other Related Indexes      
PPI Finished Goods* 0.7 0.2 -0.3 0.2 -0.2 -0.3 1.7 1.4 1.3 10.8
PPI Finished Goods less food and energy* 0.2 0.2 0.1 0.2 0.1 0.1 1.7 1.8 2.0 6.7
CPI Urban Consumer* 0.7 0.0 0.0 0.2 -0.1 0.0 2.0 1.6 1.7 7.1
CPI Urban Consumer less food and energy* 0.2 0.3 0.1 0.2 0.2 0.1 2.0 1.9 1.9 5.4
       
Production Index: Construction Supplies* 1.5 1.2 1.2 1.3 1.6 1.2 3.4 3.5 3.0 23.0
Retail Sales: Building & Equipment Supplies* 1.1 0.8 0.9 1.0 1.0 0.2 0.9 6.6 -0.2 22.7

*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; Production Index - Federal Reserve Board; Retail Sales - Census Bureau

Construction machinery prices were up 0.2% (SA) in February after rising 0.3% in January. Construction machinery rental rates increased 0.5% (NSA) following a rise of 0.3% in January. Excluding oil field equipment, rental rates increased 0.8% in February after no change in January. Although rental rates generally increased faster than purchase prices over the past eight months due to a increase in the preference among builders and developers to rent construction equipment rather than purchasing equipment, on a year-over-year NSA basis, rental rates were up less than the increase in purchase prices — 2.6% versus 3.5%. Further, rental rates were 5.6% higher than in February 2010 while purchase prices were 10.3% higher. Going forward, rental rate increases will generally exceed equipment purchase price increases this year.

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
  Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13
Assembled Equipment      
Hand and Edge tools 0.0 0.6 -0.3 0.1 0.1 0.0 2.3 2.7 2.8 3.8
Power Hand Tools -0.2 0.6 0.2 0.2 0.3 0.1 1.4 1.5 1.3 3.3
Appliances* -0.7 -0.6 0.6 -0.2 0.0 0.3 1.0 2.2 4.0 6.1
Furnaces -0.3 -2.0 1.0 -0.4 -0.4 0.5 -1.4 -0.6 2.1 3.7
AC; Refrigeration; and Forced Air Heating Equip. Mfg. 1.1 -1.2 1.3 0.4 0.3 0.6 0.6 1.3 2.2 7.8
Construction Machinery* 0.2 0.3 0.3 0.3 0.4 0.5 3.5 4.0 3.8 10.3
Construction Machinery Rental (incl. oilfield equip.) 0.5 0.3 1.1 0.6 0.3 0.4 2.6 1.5 0.1 5.6
    Construction equipment rental and leasing 0.8 0.0 0.7 0.5 0.2 0.7 2.4 0.6 -0.4 6.1
    Oilfield and well drilling equipment rental
      and leasing
0.1 1.7 3.5 1.8 0.6 0.0 5.4 5.7 4.0 8.6
Trucks over 14,000 Ibs. GVW 0.0 0.6 0.3 0.3 0.3 0.1 1.9 2.1 2.2 7.9
Metal Doors, Sash and Trim 0.0 0.1 -0.1 0.0 0.0 0.0 0.9 1.8 1.8 9.1

*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

Cement and Concrete
Cement prices surged 1.8% (NSA) higher for the second month in a row following no change in December. Prices were 5.2% higher than February 2012, but were down 0.3% from February 2010.

Prestressed concrete products prices showed the effects of higher cement prices, increasing 1.1% in February after a 0.6% increases in January. On a year-over-year basis, prices were up 1.6%, but were down 1.4% from February 2010. Precast concrete products prices edged up 0.1% in February after rising 0.3% in January. Prices were up 2.1% from February 2012 and were up 7.1% from February 2010.

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
  Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13
Construction Commodities      
Dimension Stone -0.5 1.9 0.0 0.5 0.6 0.0 1.8 2.8 1.3 4.0
Cement 1.8 1.8 0.0 1.2 0.7 0.0 5.2 3.6 3.4 -0.3
Construction Sand, Gravel & Crushed Stone* 0.3 0.2 0.1 0.2 0.0 0.2 2.4 2.9 2.3 6.1
Softwood Plywood 1.1 4.3 1.2 2.2 1.4 -1.2 17.8 20.9 19.6 32.0
Hardwood Lumber 0.9 1.9 0.2 1.0 1.1 0.5 4.7 4.0 1.6 6.8
Softwood Lumber* 2.0 6.7 2.1 3.6 4.9 1.7 27.0 24.8 17.3 25.4
Other Commodities      
Industrial Natural Gas* 0.1 0.0 1.4 0.5 0.7 1.3 0.3 -1.6 -5.0 -18.2
Plastic Resins & Materials 1.5 1.6 -0.7 0.8 0.6 0.5 3.3 3.0 3.5 17.5
Insulation Materials 2.1 2.0 0.1 1.4 0.5 -0.4 5.9 5.4 5.1 17.6
Iron & Steel Scrap -3.5 0.3 0.9 -0.8 3.9 0.0 -17.9 -19.9 -15.5 3.2
Iron Ore -24.6 -3.6 0.0 -9.2 0.3 1.8 -31.3 -8.9 -3.8 -6.7
Copper Ores 2.7 1.9 -2.6 0.6 -1.5 -2.3 -5.4 -2.0 1.6 17.8
Copper Base Scrap* -2.0 -0.4 2.0 -0.1 0.6 1.1 -1.6 1.2 0.9 21.9

*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 soared 6.1% (SA) in February after rising a more moderate 0.9% in January. They were up 3.8% (NSA) from February 2012, and were up a dramatic 65.2% from February 2010.

Industrial natural gas prices inched up 0.1% (SA) in February after no change in January. Prices were up a modest 0.3% from February 2012, but were down 18.2% from February 2010. Natural gas remains a substantial bargain compared to oil.

Plastic resins and materials prices also surged higher, up 1.5% (NSA) in February, following a 1.6% jump in January. Prices were up 3.3% from February 2012 and were up 17.5% from February 2010.

Asphalt prices continue to run counter to other energy prices, down for the fourth month in a row and for eight out of the last nine months, tumbling 3.2% (NSA) in February after plunging 6.0% in January. Prices were down 15.9% from February 2012, but were up 3.8% from February 2010. Asphalt roofing prices fell 1.5% in February after rising 0.9% in January. Prices were up 7.2% from February 2012 and were up 3.7% from February 2010.

Plastics pipe prices rose 1.1% (NSA) in February after increasing 1.9% in January. They were 5.8% higher than in February 2012 and were 26.3% higher than in February 2010. Plastics plumbing fixtures prices advanced 1.0% in February following a 2.7% nosedive in January. Prices were down a modest 0.2% from February 2012, but were up 4.8% from February 2010.

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
  Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13 Jan-13 Dec-12 Feb-13
Manufactured Materials      
Gypsum Products 4.4 11.8 -0.3 5.3 4.0 -0.2 17.8 20.4 14.0 35.4
Petroleum refineries 8.0 1.0 -2.4 2.2 -3.5 -4.5 1.0 -4.7 -3.2 48.4
Diesel Fuel* 6.1 0.9 2.6 3.2 -2.2 -1.5 3.8 -1.0 1.8 65.2
Asphalt -3.2 -6.0 -2.0 -3.8 -4.9 -2.2 -15.9 -10.6 -2.5 3.8
Asphalt paving mixture & block mfg. -0.1 0.5 -0.2 0.1 0.1 -0.1 1.0 3.2 4.0 14.2
Asphalt shingle and coating materials mfg. -1.2 0.4 -0.9 -0.5 -0.7 -0.8 4.0 0.3 -0.2 7.7
Asphalt Roofing -1.5 0.9 -1.1 -0.5 -0.8 -1.1 7.2 0.7 -0.6 3.7
       
Paint -0.5 1.1 -0.4 0.1 0.2 -0.1 0.3 0.5 10.1 15.2
Plastic Construction Products 0.0 0.2 0.2 0.1 0.3 0.3 1.4 4.0 4.7 11.0
    Plastics Pipe 1.1 1.9 0.0 1.0 1.0 1.0 5.8 10.2 12.4 26.3
    Plumbing Fixtures 1.0 -2.7 0.3 -0.5 -0.8 0.1 -0.2 -1.2 2.1 4.8
Vitreous Plumbing Fixtures 0.1 0.6 0.6 0.4 0.0 0.3 0.9 0.9 1.7 6.0
Ceramic Tile 5.1 -0.9 0.4 1.5 -0.6 0.6 3.9 -0.5 0.7 4.0
Flat Glass 0.3 0.4 -0.7 0.0 0.0 -0.1 2.1 2.2 1.0 3.8
       
Steel Mill Products -0.9 -0.1 0.9 0.0 -0.1 -0.8 -9.7 -8.3 -7.9 8.6
Steel Pipe and Tube* -2.3 -2.5 0.7 -1.4 -0.4 -0.2 -11.6 -8.8 -6.1 16.1
Hot rolled bars, plates & structural shapes -2.0 0.5 1.6 0.0 0.2 -0.7 -10.8 -9.8 -9.6 8.9
Extruded Aluminum rod, bar and other shapes -1.1 3.4 -0.5 0.6 0.7 0.5 -2.9 0.7 -3.4 3.3
Architectural Metalwork 1.0 0.3 -0.1 0.4 0.1 0.0 2.4 0.9 0.5 8.5
Metal Plumbing Fixtures* 0.3 0.0 0.2 0.2 0.0 0.2 1.7 1.3 1.7 6.0
Builders’ Hardware 0.7 -0.5 -0.6 -0.1 -0.2 -0.1 0.6 -0.2 0.5 8.1
Sheet Metal Products 0.6 -1.5 0.0 -0.3 -0.4 0.0 -1.2 -2.1 -0.5 6.1
       
Copper and Copper Products 0.6 1.2 1.3 1.0 -0.3 -0.3 -4.1 0.6 0.2 11.4
Copper and Brass Mill Shapes 0.7 0.6 1.5 0.9 -0.5 0.2 -2.1 2.9 1.0 3.1
    Nonferrous Pipe and Tube -3.3 2.6 -0.8 -0.5 -0.7 0.2 -3.7 3.5 -1.7 6.1
       
Building Brick 0.4 -1.3 0.1 -0.2 -0.5 0.0 -1.0 -1.8 -2.9 -6.5
Ready Mix Concrete* 0.5 0.3 0.2 0.3 0.2 0.2 2.4 2.3 2.3 2.9
Concrete Block & Brick -0.1 -0.2 0.6 0.1 0.1 0.2 0.7 0.8 1.5 1.3
Prestressed Concrete 1.1 0.6 0.1 0.6 0.2 0.0 1.6 0.6 -0.2 -1.4
Precast Concrete Products 0.1 0.3 1.6 0.6 0.3 0.4 2.1 2.5 2.6 7.1
Concrete Pipe 0.1 0.7 0.6 0.5 0.4 0.7 5.2 5.0 4.3 6.0
       
Engineered Wood Products 1.1 2.1 2.3 1.8 2.0 1.3 16.1 15.1 12.5 20.9
Wood Kitchen Cabinet and Countertop Mfg. 0.7 1.0 0.3 0.7 0.4 0.2 3.6 2.9 2.0 6.6
Millwork (window, door, cabinet)* 0.0 1.1 0.2 0.4 0.5 0.1 2.7 2.5 1.5 7.1
Wood Window and Door Mfg. -0.6 1.4 0.3 0.4 0.7 0.1 0.8 1.8 0.5 8.1
Metal Window and Door Mfg. 0.0 0.1 -0.1 0.0 0.0 0.0 0.8 1.9 1.9 8.8
Laminated Plastics 6.1 0.3 -0.1 2.1 0.0 -0.1 7.1 0.9 0.6 12.8
Nonresidential Electric Lighting Fixture Mfg. -0.1 -0.1 0.4 0.1 0.1 0.1 0.2 0.4 0.4 6.0

*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 shot up 2.7% (NSA) in February after increasing 1.9% in January. Despite the two month surge, prices were down 5.4% from February 2012, but were up 17.8% from February 2010.

Copper base scrap prices dropped 2.0% (SA) in February following a 0.4% decline in January. Prices were 1.6% lower than in February 2012, but were 21.9% higher than in February 2010.

Prices for copper and copper products increased 0.6% (NSA) in February after rising 1.2% in January. Prices were down 4.1% from February 2012, but were up 11.4% from February 2010.

Copper and brass mill shapes prices rose 0.7% in February after advancing 0.6% in January. Prices were 2.1% lower than in February 2012, but were 3.1% higher than in February 2010.

Other Metals
Steel mill products prices fell 0.9% (NSA) in February following a 0.1% decline in January. Prices were down 9.7% from February 2012, but were up 8.6% from February 2010. Hot rolled bars, plates, and structural shapes prices decreased 2.0% in February following a 0.5% increase in January. However, prices were down 10.8% from February 2012, but were up 8.9% from February 2010.

Extruded aluminum rod, bar, and other shapes prices reversed course, dropping 1.1% (NSA) in February after jumping 3.4% in January. Prices were 2.9% lower than in February 2012, but were 3.3% higher than in February 2010.

Softwood Lumber and Gypsum
Softwood lumber and gypsum products demand is mainly driven by single-family housing construction activity. As a result of the improving single-family housing market, demand has increased for these materials.

The PPI for softwood lumber climbed 2.0% (SA) in February after leaping 6.7% in January. Prices were up 27.0% from February 2012 and were up 25.4% from February 2010.

Canadian softwood lumber exports to the U.S. are regulated by the Softwood Lumber Agreement (SLA). Each month the level of exports permitted and any relevant export fees are determined by where the average price of softwood lumber over a specified four week period prior to that month falls within a four tier regime. The categories (or tiers), from most restrictive to least restrictive and the related prices determining which category is in force for the month, are as follows:

Increased single-family construction activity and repair activity following Hurricane Sandy together with supply bottlenecks drove prices for softwood lumber to a level that resulted in tier 4 — no restrictions on Canadian exports — for the first four months of the year. Prices have continued high enough that it is extremely likely that tier 4 will remain in effect in May. The table below summarizes recent average prices and the resulting tier (category).

Average Prices to Determine
SLA Canadian Softwood Export Restrictions

  2012 2013
  November December January February March April
Average Price $326 $334 $357 $385 $395 $416
Tier 2 2 4 4 4 4

Source: Foreign Affairs and International Trade Canada

Last year several gypsum producers announced price increases of 25% to 30% effective at the beginning of this year. To date the gypsum producers have had some success pushing the higher prices through the system. Gypsum prices advanced a strong 4.4% in February after rocketing 11.8% higher in January. Since December, gypsum prices were up 16.7%. They were up 17.8% from February 2012 and were up 35.4% from February 2010.

Outlook for Construction Materials Prices
All indications are that the U.S. economy is growing at a moderate pace. Sequestration (a total of $85 billion of across the board cuts for federal spending) and the approaching expiration of the temporary federal debt ceiling in mid-May are the major near-term domestic challenges for the economy. A continuing resolution that was signed into law will keep the federal government operating through the end of September, giving time to pass legislation to fund government operations beyond that date. Failure to do so will be a further stumbling block for economic performance. Problems in Cypress are a reminder that European economic issues continue to pose a threat to the U.S. economy as well as to the European and the rest of the world economies.

Despite these and other economic risks, the Reed Construction Data forecast is that the United States economy maintains its generally moderate growth path. The forecast is for nonresidential construction activity to turn in modest growth this year and show more strength next year. Along with continued expansion of the residential sector, this will create moderate upward pressure on construction materials prices. The outlook is for 2013 building materials prices to rise at roughly the same pace or a slightly faster than overall inflation.

If the U.S. economy exceeds our forecast of real (inflation-adjusted) gross domestic product (GDP) growth of 2.5% for the year, there will be increased construction activity and greater increases in materials prices. Faster growth in the rest of the world would also mean higher construction materials price inflation. Significantly higher energy prices for a sustained period would contribute to a greater rate of building materials price inflation.