The BlS Reported That The SA PPI for Materials and Components

The Bureau of Labor Statistics (BLS) reported that the seasonally adjusted (SA) Producer Price Index (PPI) for materials and components used in construction rose 0.2% in December after no change in November. The index was up 3.6% on a year-over-year basis, but was only 3.1% higher than its December 2008 reading. Meanwhile, raw materials used in construction or to produce products used in construction rose a more troublesome 0.5%, its fourth consecutive monthly increase. On the positive side, the index was up a moderate 1.3% from a year earlier. An index that measures inputs used in nonresidential construction (excluding capital equipment) fell 0.4% in December on a not seasonally adjusted (NSA) basis after remaining unchanged in November. Nonetheless, it was up 5.8% from December 2010. After falling 0.2% in November, SA construction machinery prices advanced 0.6% in December. Further, they were up 4.2% from a year earlier and 6.0% from December 2008. Cement Cement prices have started rising, increasing 0.9% in December after advancing 1.2% in November. Prices were up 1.1% from a year earlier but were still down 8.5% from December 2008. As multifamily construction and other commercial construction improve over coming months, cement prices are likely to continue to rise. Energy and Related Products Energy and related prices continued to be mixed in December. Diesel fuel prices fell 3.8% (SA) after surging 7.5% in November. Diesel prices were up 20.2% from a year earlier and 85.4% from December 2008. Meanwhile, industrial natural gas prices continued their recent downward trajectory, falling 2.6% in December, their sixth monthly decline in the last eight months. On a year-over-year basis, they were down 6.1%, and since December 2008 they were down 28.8%. In addition to plentiful supply, undoubtedly the mild winter in much of the country has reduced demand for natural gas, adding to the downward pressure on prices. On the other side of the coin, asphalt prices (NSA) jumped 6.1% in December after dropping 3.2% the previous month. Further, they were up 34.8% from a year earlier, and 35.1% from December 2008. Asphalt roofing prices rose a more modest 1.0% after falling 5.4% in November. They were up 2.6% from a year earlier and were actually down 1.3% from three years earlier. Plastic construction products prices slipped 0.1% in December after falling 1.3% in November. However, they were up 3.6% from a year earlier and 6.2% from December 2008. Plastics pipe prices fell 1.1% in December after dropping 5.3% the previous month. They were up 2.1% from December 2010 and 6.8% from December 2008. At the same time, plastics plumbing fixtures prices were unchanged in December after inching up 0.2% in November. They were up 5.0% from a year earlier and 5.4% more from three years earlier. The jump in oil prices in January will show up in next month’s PPI numbers. Higher oil prices will also flow through to related products over the ensuing months. Copper and Copper Products Prices for copper and copper products generally fell in the last five months of 2011 — spot market prices for copper were roughly $1 a pound lower by the end of the year from their July levels, though the decline was slowing in December. Prices for copper ores declined 0.6% in December after dropping 5.1% in November. From December 2010, prices were down 15.4% but had doubled (+100.9%) from three years earlier. Prices of copper base scrap rose the last two months of the year on a seasonally adjusted basis — up 8.2% in November and 2.7% in December. However, prices were down 3.2% from December 2010 but have more than doubled from three years earlier, soaring 132.4%. Copper and brass mill shapes prices fell 0.4% in December, their fifth consecutive monthly decline. On a year-over-year basis, they were down 9.3% but were up 43.2% from three years earlier. Copper pipe (nonferrous pipe and tube) prices edged up 0.1% in December after plummeting 12.2% in November. They were down 12.2% from a year earlier but up 50.2% from three years earlier. In January, spot copper prices moved up again, suggesting that prices for copper products could come under upward pressure again if those prices are sustained in February. Softwood Lumber and Gypsum Single-family housing construction activity largely determines demand for softwood lumber and gypsum products, both of which have suffered since single-family housing construction peaked in 2006. There has been modest improvement in the single-family housing market over the last few months. Single-family starts and permits increased over the last three months of 2011. New single-family home sales did stumble in December but were up the previous three months. The PPI for softwood lumber peaked in August 2004. As of December, the index was down almost a third (-31.5%) from that peak. More recently with the slight improvement in single-family housing, softwood lumber prices have moved off their lows (as of December, the index was up 18.4% from its May 2009 cycle low). Still, on a year-over-year basis, the index was down 0.4%. Late last year, six gypsum producers announced they were raising prices 35% as of January of this year. The PPI for gypsum product prices rose 0.6% in December following a 0.4% decline in November. Possible stockpiling of product by wholesalers, home supply stores, and some builders in anticipation of the price increase may explain the upward pressure on gypsum prices in December. On a year-over-year basis, prices were down 1.5% from a year earlier and 8.7% from three years earlier. With continued (though improving) weak demand for single-family construction, it is hard to see how the sharp increase in gypsum prices can be maintained for long. Outlook for Construction Materials Prices With the economy showing modest, but improving growth — the initial report on real (inflation-adjusted) Gross Domestic Product (GDP) growth for fourth quarter 2011 was 2.8% at a seasonally adjusted annual rate, the strongest quarter in over a year — construction materials prices will firm and move roughly in line with general inflation over the next six months. Faster than projected sustained economic growth (3% or higher at an annual rate) will accelerate commercial construction activity and push materials price inflation higher than general inflation. This seems unlikely to happen before the second half of 2012. Troubles in Europe and expected relatively modest growth in the rest of the world will help keep prices from more rapid gains. The strength of the foreign exchange value of the dollar is another factor helping to hold down prices. However, faster growth in the rest of the world than forecast would add to construction materials price inflation as would stimulative action by some European economies (highly unlikely). Energy prices remain the biggest risk to materials price inflation and the health of the world economy. The recent threat of sanctions against Iran and concern over the fallout for oil supplies pushed oil prices up around $100 a barrel. The current spike in oil prices is uncomfortable, but not disastrous. A prolonged, even higher increase in oil prices would hurt consumers and adversely affect the growth of the economy, possibly pushing the U.S. back into recession. Source: reedconstructiondata.com