Construction producer price index (PPI), starts rose in May but fell from 2008 in largest one-year drop in 60 years; states, metros shed jobs
By Ken Simonson
The producer price index (PPI) for finished goods climbed 0.5 percent, not seasonally adjusted (0.2 percent, seasonally adjusted), in April but fell 5 percent over the 12 months since May 2008, the Bureau of Labor Statistics (BLS) reported on Tuesday. That was the largest one-year drop in 60 years. The PPI for inputs to construction rose for the month and decreased from 12 months ago for every type of construction: all construction industries, 0.6 percent and - 5.3 percent; highway and nearly street, 2.1 percent and -11 percent; other heavy, 0.8 percent and -10 percent; nonresidential buildings, 0.6 percent and -5.9 percent; multi-unit residential, 0.2 percent and -3.8 percent; and single-unit, 0.1 percent and -1.0 percent.
The variations reflect disparities in the weights for PPIs for different materials. The PPI for diesel fuel jumped 4.4 percent for the month but was down -58 percent over 12 months; asphalt paving mixtures and blocks, 3.5 percent and 12 percent; concrete products, -0.1 percent and 2.1 percent; steel mill products, -2.7 percent and -24 percent; copper and brass mill shapes, 0.8 percent and -25 percent; plastic construction products, -0.1 percent and 1.7 percent; gypsum products, -2.4 percent and 4.2 percent; lumber and plywood, -0.9 percent and -14 percent.
PPIs for new buildings and subcontractor types, the only indexes that attempt to include overhead, profit and labor costs, were mixed for the month but up over 12 months. The PPI for new industrial buildings was down -0.3 percent for the month but up 6.9 percent since May 2008; warehouses, -0.4 percent and 5.7 percent; schools, 0 and 11.5 percent; and offices, 0.3 percent and 6.4 percent. The PPI for nonresidential building work by concrete contractors rose 0.4 percent and 4.8 percent; roofing, 0 and 11 percent; electrical, -0.1 percent and 3.1 percent; and plumbing, 0.3 percent and 8.7 percent.
New construction starts jumped 7 percent in value in May at a seasonally adjusted annual rate, McGraw-Hill Construction reported, based on data it collected. However, year-to-date (YTD) starts in the first five months of 2009 combined were 38 percent below the same period of 2008.
“May’s strengthening was led by a substantial increase for public works, which featured a major pipeline project as well as gains for highways, bridges, sewers and water supply systems. Meanwhile, housing stayed flat and nonresidential building resumed its downward trend after the brief upturn reported in April,” Robert Murray, vice president of economic affairs [commented,] “Single-family housing now seems to be leveling off after its lengthy correction, and public works is picking up speed, with more to come given the lift that’s just beginning to emerge from the federal stimulus funding. This will be offset, however, by further weakness for nonresidential building, involving its commercial, manufacturing and institutional segments.”
Nonbuilding construction in May surged 28 percent to $149.1 billion (annual rate). The “miscellaneous” public works category (including such project types as pipelines and rail work) soared 91 percent, with the push coming from $2.5 billion related to segments of the Keystone oil pipeline project covering the states of South Dakota, Nebraska, Kansas, Missouri, and Illinois. If this massive project is excluded from the May statistics, then the 28 percent increase for nonbuilding construction would be reduced to a 2 percent gain, and the 7 percent increase for total construction would become a 1 percent decline.” Residential building starts were unchanged in May and off -49 percent YTD; nonresidential building, -4 percent and -43 percent; and nonbuilding, 28 percent and -14 percent.
Seasonally adjusted construction employment rose in May in 18 states, fell in 31 plus D.C., and was unchanged in South Carolina. Compared to a year earlier, construction employment dropped in 48 states plus D.C., and climbed only in North Dakota, 4 percent, and Louisiana, 3 percent. The biggest 12-month percentage declines were in Arizona, -28 percent; Kentucky and Connecticut, -21 percent each; and Nevada and Tennessee, -20 percent each. (To prevent disclosure of data for industries with small employment totals, BLS presents construction combined with mining and logging in Tennessee, five other states and D.C.)
Industrial production of construction supplies fell 1.0 percent in May, -1.5 percent in April and -21.5 percent over 12 months. Capacity utilization in manufacturing fell to 65 percent from 65.6 percent in April and a long-term average of 79.6 percent. The combination of falling current output and low capacity utilization is very negative for demand for factory construction.
Edited by Kevin Doyle
The Data DIGest is a weekly summary of economic news compiled by Ken Simonson, the Chief Economist of The Associated General Contractors of America (AGC).