This article was posted 04/26/2006 and is most likely outdated.

Construction PPI again outstrips overall PPI, CPI
 

 
Topic - Business/Management
Subject - Construction PPI again outstrips overall PPI, CPI

April 26, 2006  

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Construction PPI again outstrips overall PPI, CPI

 

The producer price index (PPI) for finished goods rose 0.5% in March, seasonally adjusted, and 3.5% from March 2005, the Bureau of Labor Statistics (BLS) reported on Tuesday. The “core” PPI, which omits food and energy costs, rose just 0.1% for the month and 1.7% for the 12-month span. The PPI for materials and components for construction climbed 0.5% and 5.9%. The PPI for highway and street construction inputs rose 11.8% over 12 months; for single- and multi-unit residential, nonresidential building, and other heavy construction, increases ranged from 6.1% to 7%. The highway construction index rose so much because the PPI for asphalt paving mixtures and blocks was up 20.5%; ready-mixed concrete, 12%; and diesel fuel, 19%. Other large increases included copper and brass mill shapes, 35%; gypsum products, 23%; plastic construction products, 20.5%; and nonferrous pipe, tube, and fittings, 16%. The overall increases were held down by declines in lumber and plywood, -3.4%, and steel mill products, -3.1%. Some PPIs reversed direction in the latest month, though a one-month drop may not be repeated: gypsum products, -0.6%; plastic construction products, -0.1%; nonferrous pipe, tube, and fittings, 0%. But cement rose another 0.7%; construction sand/gravel/crushed stone, 0.9%; copper base scrap, 2.6%; and asphalt, 14%, implying further increases in products that use these inputs. AGC received reports last week from Spokane and Palm Beach of a $15 per ton increase in rebar prices, with one report suggesting further increases totaling $100 were in the works.

 

The national average retail price of highway diesel fuel rose 11 cents per gallon for the second straight week, to a six-month high of $2.88, 59 cents (26%) higher than a year ago, the Energy Information Administration (EIA) reported today. Contractors use highway diesel to run construction vehicles such as dump trucks and concrete mixers; they also pay fuel surcharges on deliveries. Offroad diesel fuel, which generally has similar price movements but is not subject to federal and state highway fuel taxes and may have higher sulfur content, is used in tower cranes, earthmovers, and other equipment.  In its Short-Term Energy and Summer Fuels Outlook released on April 11, EIA wrote, “The transition to ultra-low-sulfur diesel fuel (ULSD) begins in the third quarter of 2006 with about 80% of the on-highway diesel fuel market expected to meet the new 15 parts per million (ppm) maximum sulfur limit this year, down from 500 ppm. This conversion to ULSD is possibly the most difficult fuel specification transition the refining industry has had to make so far. The transition will result in increased production costs and distribution complexity. Specific average production cost increases are highly uncertain, with typical estimates of at least five cents per gallon. But during the transition period, diesel prices may be driven more by short-term supply/demand balances than by average production cost economics.”

 

Several construction inputs are, or may soon be, in short supply. The equipment used to remove sulfur also enables refiners to produce more high-value products from a barrel of oil but less liquid asphalt. Several paving contractors said refiners had warned that they will stop supplying liquid asphalt by yearend. AGC has heard reports of shortages of cement (Spokane, Little Rock), fly ash (Oregon) and gasoline (Virginia).

 

The consumer price index for all urban consumers (CPI-U) rose 0.4% in March, seasonally adjusted, and 3.4% over 12 months, BLS reported on Wednesday. The “core” index moved up 0.3% for the month and 2.1% over 12 months. The CPI for urban wage earners and clerical workers (CPI-W), which is used to adjust many construction and other labor contracts, rose 3.6% over 12 months.

 

Seasonally adjusted nonfarm payroll employment by state increased in 40 states and decreased in 10 states and the District of Columbia in March, BLS reported on Friday. Compared to March 2005, employment increased in 48 states and DC and decreased in Louisiana (-9%) and Michigan (-0.5%). The biggest 12-month percentage gains were in Nevada and Arizona (6% each), Idaho (5%), Utah and Florida (4% each). Construction employment rose for the month in 28 states and DC, was unchanged (or within 100 of the February total) in 10, and fell in 12. Compared to March 2005, construction employment rose in 46 states, was within 100 of prior levels in DC, Michigan, and Vermont, and fell in Louisiana (-8%) and Connecticut (-1%). The largest 12-month percentage gains were in Idaho (16%), Arizona, Mississippi, Nevada, and Oregon (all 13%).

 

The Census Bureau issued a report on Domestic Net Migration in the United States: 2000 to 2004 on Thursday. The report tracks the regions that have gained or lost migrants  from other regions in those four years and in the 1990s (excluding foreign immigrants and births or deaths). The data can pinpoint areas likely to be conducive to construction activity. Nevada had the highest annualized net migration rate of any state, 23.3 per 1000 average population for the period, “with Arizona (12.2) a distant second.” The highest rates of outmigration were in DC (-18.1), New York (-9.6), and Massachusetts (-6.6). Compared with the 1990s, 21 states and DC had higher average annual levels of net migration (more inmigration or less outmigration) in 2000-2004, while 29 states had lower levels. The largest positive swings were in DC (-26.1 to -18.1) and Hawaii (-10.3 to -1.7).

 

The Data DIGest is a weekly summary of economic news; items most relevant to construction are in italics. All rights reserved. The Data DIGest is provided by Ken Simonson, Chief Economist, Associated General Contractors of America. http://www.agc.org  

 

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