Producer prices accelerate; with increases announced; January starts data are mixed

            The producer price index (PPI) for final demand in January, not seasonally adjusted, increased 0.6% from December and 2.7% year-over-year (y/y) from January 2017, the Bureau of Labor Statistics (BLS) reported on Thursday. AGC posted tables and an explanation focusing on construction prices and costs. Final demand includes goods, services and five types of nonresidential buildings that BLS says make up 34% of total construction. The PPI for final demand construction, not seasonally adjusted, jumped 0.8% for the month and 3.4% y/y, the largest y/y increase since March 2014. The PPI for new nonresidential building construction—a measure of the price that contractors say they would charge to build a fixed set of five categories of buildings—rose 3.6% y/y. Increases ranged from 2.5% y/y for office buildings to 3.4% for health care buildings, 3.5% for warehouses, 4.2% for schools and 4.6% for industrial buildings—the largest rise for this building type since 2009. PPI increases for subcontractors' new, repair and maintenance work on nonresidential buildings ranged from 1.1% y/y for roofing contractors to 3.4% for concrete contractors and 4.3% for plumbing and electrical contractors. The PPI for inputs to construction—excluding capital investment, labor and imports—comprises a mix of goods (59%) and services (41%). This index increased 4.3% y/y, which exceeded the 3.6% PPI increase for new nonresidential building construction, implying a cost squeeze for contractors. The PPI for inputs to construction, goods (including items consumed by contractors, such as diesel fuel) rose 4.9% y/y, as the sub-index for energy soared 18%, while the PPI for goods less food and energy rose 3.4%. The index for inputs to construction, services increased 3.5% for the year. PPIs for inputs to seven types of new nonresidential structures had increases ranging from 3.8% for industrial structures to 5.6% for power and communications structures. PPIs for inputs to new residential structures rose 4.3% y/y for single-family housing and 3.9% for multifamily. Materials important to construction that had notable one- or 12-month price changes include diesel fuel, up 3.2% in January and 43% y/y; copper and brass mill shapes, 5.4% and 18%, respectively; lumber and plywood, 0.8% and 12%; aluminum mill shapes, -1.4% and 11%; gypsum products, 2.3% and 7.0%; and steel mill products, 0.1% and 5.3%. Among services important to construction, the PPI for truck transportation of freight rose 1.4% for the month and 5.2% y/y.

            Trucking costs rose for a combination of reasons. "A nationwide shortage of available trucks has sent shipping costs soaring, with retailers and manufacturers in some cases paying over 30% above typical rates to book last-minute transportation for cargo," the Wall Street Journal reported on February 7. "Truck capacity is also under pressure because of a new federal safety rule that requires truckers to electronically track their hours behind the wheel, which has kept some trucks off the road and lengthened delivery times." With capacity tight, trucking firms are better able to pass on the steep fuel cost increases. In addition, truck drivers are in short supply. One ready-mix concrete company in the Southeast told AGC it needs 100 drivers more than the 100 it has.

            A variety of suppliers has announced further input cost increases since BLS collected pricing data in mid-January. A reader based in South Carolina forwarded letters from ready-mix companies announcing increase in prices effective April 1 that will range from $8 to $12 per cubic yard. A reader in Massachusetts received a notice of 6-7% increases in prices for insulated metal panels effective January 26. A steel supplier in Florida passed along several price increase notices for rebar, noting on January 26, "25% increase in 45 days and more to come." A supplier of aluminum awnings and canopies reported multiple price increases, including a steep surcharge for small orders. Today, Commerce Secretary Wilbur Ross sent President Trump reports on steel and aluminum imports that recommended tariffs of 24% and 7.7%, respectively, on all imports, or equivalent dollar amounts (and higher percentages) based on 2017 imports or levied on specific countries. If the President adopts these recommendations, prices would go up substantially for steel and aluminum construction products.

            On Wednesday, construction data supplier ConstructConnect reported, "January's value of construction starts, excluding residential activity,...compared with January 2017 was -23%....Usually, it's the presence or absence of a mega project or two that causes the monthly number to display extreme volatility. Comparing January of this year with the annual average for January from the preceding five years, 2013 to 2017—i.e., employing a 'smoothing' technique—yields an increase of 9.7%." Nonresidential building starts plunged 29% y/y, while heavy engineering (civil) starts declined 9.7%. ConstructConnect also revised its estimates from last month for total 2017 starts compared with 2016. The total increased 0.8%, as heavy engineering/civil starts jumped 26%, while nonresidential building starts increased 3.9% (commercial, -0.9%; institutional, -0.4%; and industrial, 71.3%). ConstructConnect counts the full value of a project in the month it starts, whereas Census Bureau data on construction spending count only spending that occurs in a given month or year on projects already under way.

           Housing starts in January jumped 9.7% at a seasonally adjusted annual rate from the December rate, and were 7.3% above the January 2017 rate, the Census Bureau reported on Friday. Single-family starts climbed 3.7% for the month and 7.6% y/y. Multifamily starts (in buildings with five or more units) soared 20% for the month and increased 3.1% y/y. Building permits, a fairly reliable indicator of near-term starts, increased by 7.4% both for the month and y/y. Single-family permits decreased 1.9% for the month but rose 7.4% y/y. Multifamily permits leaped 25% for the month and were up 3.0% y/y.

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