PPI Data Says Cost of U.S. Construction Storming Higher

 
06/12/2019



Nearly 70 Producer Price Index Series

Table 1 below sets out percentage changes, over various time periods, for 69 Producer Price Index (PPI) data series having relevance for construction. The Bureau of Labor Statistics (BLS) calculates the PPI indices.  

PPI Data Says Cost of U.S. Construction Storming Higher Graphic

The top portion of Table 1 records cost changes for ‘final demand’ construction according to type-of-structure categories. The ‘final demand’ indices reflect the prices paid by owners for the construction of projects. They include material, labor and markups.

The concluding section in this article will comment more fully on the sharp rise in ‘final demand’ construction costs since year-end 2016.

The ‘service’, ‘commodity’ and ‘energy’ indices in the middle section of Table 1 are based on what have been termed ‘factory-gate’ prices. They are prices in effect as the product or service goes out the front door. They do not include warehousing, wholesaling or transportation.

The ‘input’ indices at the bottom of the table capture material and service costs faced by contractors. They exclude capital investment (i.e., machinery and equipment), labor and imports.

Biggest Price Movers Among Construction ‘Commodities’

From the middle portion of Table 1, the construction service or building product components displaying the greatest year-over-year price increases in April were: asphalt, +28.0%; steel bars, plates and structural shapes, +9.6%; iron ore (i.e., an important ingredient in steel), +7.0%; and heating equipment, +6.8%.

Steel pipe and tube, plus paints and architectural coatings, also saw prices rise notably y/y in April, +6.2% in both cases. Standing out as well were air conditioning equipment, +5.9%, and construction machinery and equipment, +5.7%.

Moving dramatically to the downside y/y were iron and steel scrap, -15.7%; particle board and oriented strandboard (OSB), -15.2%; softwood lumber, -12.6%; plywood, -11.1%; and gypsum, -6.1%.

Table 1: U.S. Producer Price Index (PPI) Results
% Change in the April 2019 Index from:
  3 Years   1 Year    6 months   3 months   1 month 
  Ago   Ago   Ago   Ago   Ago
                   
Final Demand/Service/Commodity/Energy/Input:                  
Final Demand Construction 10.9%   5.4%   2.5%   1.7%   1.6%
Construction for private capital investment 11.2%   5.5%   2.5%   1.6%   1.5%
Construction for Government 10.6%   5.3%   2.6%   1.9%   1.7%
New warehouse building construction 11.0%   5.2%   3.6%   2.0%   2.3%
New school building construction 11.7%   6.2%   2.9%   2.2%   2.0%
New office building construction 10.8%   4.9%   1.9%   1.3%   1.5%
New industrial building construction 13.1%   6.9%   3.2%   2.1%   2.0%
New health care building construction 9.6%   5.0%   2.0%   1.3%   0.7%
Architectural & engineering services 7.5%   3.1%   2.2%   1.2%   1.0%
Construction machinery & equipment 5.9%   5.7%   1.4%   0.3%   0.2%
Asphalt 119.8%   28.0%   -7.7%   12.7%   13.5%
Plastic construction products 9.2%   1.8%   0.9%   -0.1%   -0.1%
Softwood lumber 10.5%   -12.6%   2.0%   4.6%   -0.8%
Hardwood lumber 2.5%   -3.5%   -1.3%   -0.4%   1.4%
Millwork 10.1%   2.7%   0.8%   0.8%   0.0%
Plywood 9.7%   -11.1%   -8.1%   -0.5%   0.1%
Particle board & oriented strandboard (OSB) 4.0%   -15.2%   -3.1%   4.0%   0.9%
Gypsum 8.0%   -6.1%   -4.4%   -0.6%   1.0%
Insulation materials 8.4%   5.3%   2.0%   0.0%   1.7%
Construction sand, gravel & crushed stone 11.0%   4.0%   2.5%   -0.1%   0.4%
Cement 10.5%   3.5%   2.6%   1.8%   1.8%
Ready-mix concrete 10.0%   1.6%   2.3%   1.4%   2.1%
Precast concrete products 11.4%   4.8%   2.9%   -0.1%   0.2%
Prestressed concrete products 8.6%   4.3%   0.6%   0.1%   0.6%
Brick (clay) 4.6%   1.3%   1.4%   0.5%   0.2%
Coal 6.6%   1.0%   -0.2%   -2.0%   -0.2%
Iron ore 17.3%   7.0%   2.6%   1.4%   0.3%
Iron & steel scrap 37.1%   -15.7%   -4.6%   -1.6%   -3.1%
Steel bars, plates & structural shapes 35.8%   9.6%   -0.5%   -1.7%   0.4%
Steel pipe & tube 34.5%   6.2%   -3.3%   -3.6%   -1.1%
Fabricated structural metal products 13.3%   3.8%   0.6%   0.2%   -0.7%
Prefabricated Metal Buildings 20.5%   1.6%   -2.6%   -1.2%   0.8%
Metal valves 10.0%   3.6%   1.3%   0.8%   0.0%
Aluminum mill shapes 24.8%   0.6%   -0.9%   0.8%   0.0%
Sheet metal ducting 2.9%   0.5%   0.0%   0.0%   0.0%
Flat glass 4.3%   0.4%   0.7%   -0.3%   0.4%
Paints, architectural coatings 11.1%   6.2%   5.0%   0.7%   -1.0%
Lighting fixtures 7.6%   4.9%   1.1%   0.4%   0.2%
Plumbing fixtures & fittings 9.3%   4.4%   4.0%   2.0%   0.0%
Elevators & escalators 9.9%   4.7%   3.6%   1.4%   -0.1%
Heating equipment 10.8%   6.8%   2.2%   0.6%   0.8%
Air conditioning equipment 11.1%   5.9%   2.9%   1.5%   0.8%
Copper wire & cable 19.8%   -5.5%   -0.6%   0.7%   -2.3%
Fiber optic cable -1.2%   -0.5%   0.0%   0.0%   0.0%
Regular gasoline unleaded 50.1%   1.8%   -7.4%   42.5%   15.2%
Diesel Fuel 95.6%   4.3%   -11.0%   20.4%   -1.5%
Jet Fuel 85.4%   0.9%   -13.4%   14.9%   0.2%
Natural gas 32.3%   -3.2%   -14.2%   -31.3%   -8.7%
Natural gas to electric utilities 2.2%   -1.1%   -7.2%   -16.7%   -1.3%
Commercial electric power 3.8%   -0.1%   -3.0%   0.5%   -0.5%
Industrial electric power 17.6%   0.1%   -3.5%   -2.0%   -1.2%
Residential electric power 6.0%   1.4%   0.6%   0.4%   -0.2%
Commercial natural gas 18.3%   1.4%   4.3%   -5.0%   -2.8%
Industrial natural gas 6.9%   -4.0%   -1.7%   -10.5%   -3.6%
Residential natural gas 16.8%   1.5%   3.8%   -2.5%   -1.0%
Inputs to new construction 12.7%   2.9%   0.4%   2.4%   1.0%
   Inputs to new construction, goods 13.7%   2.5%   -0.6%   3.5%   0.9%
   Inputs to new construction, services 11.3%   3.4%   1.6%   1.0%   1.2%
Inputs to new residential construction 12.0%   2.5%   0.4%   1.8%   1.0%
   Inputs to single-family res construction 12.1%   2.4%   0.3%   2.0%   1.0%
   Inputs to multi-family res construction 12.1%   2.3%   0.3%   1.8%   1.2%
Inputs to new non-res construction 13.0%   3.2%   0.4%   2.8%   1.0%
   Inputs to commercial construction 13.0%   3.2%   0.4%   2.3%   0.7%
   Inputs to healthcare structures 12.4%   2.9%   0.5%   2.2%   0.7%
   Inputs to industrial structures 12.4%   4.2%   1.4%   2.6%   0.9%
   Inputs to highways & streets 14.6%   3.5%   -0.5%   3.5%   1.4%
   Inputs to power & communication structures 13.7%   2.9%   0.1%   3.2%   1.1%
   Inputs to educational & vocational structures 11.9%   2.8%   0.5%   1.8%   0.7%
Inputs to maintenance & repair construction 12.7%   2.8%   0.4%   2.7%   1.2%
Construction materials (PPI ‘Special Index’) 11.7%   2.2%   -0.5%   -0.8%   -0.4%
The ‘final demand’ indices (at top) reflect the prices paid by owners for the construction of projects. They include material, labor & markups.
The ‘service’, ‘commodity’ and ‘energy’ indices (in the middle section of the table) are based on ‘factory-gate’ sales prices.
The ‘input’ indices (at bottom) reflect costs faced by contractors. They exclude capital investment (i.e., machinery & equipment), labor & imports.
The ‘input’ indices are built up from the ‘service’ (design, legal, transport & warehousing, etc.) ‘commodity’ and ‘energy’ indices.
Data source: Producer Price Index (PPI) series from Bureau of Labor Statistics (BLS).
Table: ConstructConnect.

Skyrocketing Construction Costs Defy CPI Inflation’s Moderation

Consumer Price Index (CPI) inflation, presently at +2.0% year over year, remains restrained.

The cost of construction, however, as calculated by the BLS in its ‘final demand’ Producer Price Index (PPI) series, is skyrocketing. Graph 1 shows the trajectory.

At the end of 2016, the y/y increase in ‘final demand construction cost’ was less than half of one percent (+0.5%). An almost steady and remarkably steep climb since then has resulted in a +5.4% y/y figure in the latest reported month, April 2019.  

Furthermore, none of the material and service ‘input’ index y/y results appearing at the bottom of Table 1 have been matching the +5.4% gain for final demand. ‘Inputs to industrial structures’ have risen the most, but by a still lesser +4.2%.

Logic therefore dictates that the extra bump-up in ‘final demand construction cost’ originates in labor, overhead and/or profit. Construction labor, which is currently in notoriously short supply, seems the most likely source. Although it should also be noted the wage increases for construction workers appearing in the monthly Employment Situation report from the BLS indicate nothing too alarming. Year-over-year hourly and weekly earnings in the construction sector have consistently been lying between +3.0% and +4.0%.

Perks in addition to nominal wages (e.g., signing bonuses) are likely contributing more than usual to construction labor cost hikes.

In any event, surpassing even +5.4% y/y for overall ‘final demand construction cost’ are new school buildings, +6.2%, and new industrial buildings, +6.9%. 

Graph 1: Final Demand Construction − U.S. Producer Price Index (PPI)
Final Demand Construction ? U.S. Producer Price Index (PPI)
The last data point is April, 2019.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Chart: ConstructConnect.

SOURCE: https://www.constructconnect.com/blog/economy/ppi-data-says-cost-u-s-construction-storming-higher/



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