PPI plunges, but not for all construction inputs; Reed, others record scattered starts
December 12, 2008
The producer price index (PPI) for finished goods dropped 2.9% before seasonal adjustment (-2.2%, seasonally adjusted) in November, and rose only 0.4% from November 2007, the Bureau of Labor Statistics (BLS) reported on Friday. The PPI for inputs to construction industries fell 3.2% for the month but was 4.9% higher than in November 2007. The segment with the largest decline for the month was highway and street construction, -6.6% and 3.7% year-over-year; followed by other heavy construction, -4.8% and 4.0%; nonresidential buildings, -3.3% and 4.2%; multi-unit residential buildings, -1.9% and 4.5%; and single-unit residential, -1.3% and 6.2%. PPIs for several construction materials declined sharply for the month and year: diesel fuel, -20% and -24%; copper and brass mill shapes, -11% and -19%; aluminum mill shapes, -3.8% and -1.1%; and lumber and plywood, -2.0% and -6.0%. Other prices have come down but not to year-ago levels: steel mill products, -9.0% and 21%; asphalt paving mixtures and blocks, -0.5% and 45%; and plastic construction products, -1.1% and 5.5%. Items that rose in price in November and over 12 months included construction machinery and equipment, 1.1% and 5.1%; concrete products, 1.0% and 4.6%; gypsum products, 0.7% and 6.4%; and insulation materials, 0.6% and 0.6%. PPIs for finished buildings (including labor, profit and overhead) showed little movement for the month: new industrial buildings, -0.1% and 7.5%; new warehouses, 0 and 6.3%; new schools, 0.2% and 8.2%; and new offices, 0.3% and 6.3%. PPIs introduced in July for subcontractors’ nonresidential building work (new, repair and maintenance) rose 0.6% in November for concrete contractors, 0.3% for roofing and 0.1% for electrical and plumbing.
The value of nonresidential construction starts in November “jumped 19% from October, much more than offsetting the usual seasonal decline,” Reed Construction Data reported on Wednesday, using its own data collection. However, Reed warned, “It is a misleading measure of construction industry prospects” as some projects affected by the freezing of bank credit and municipal bond markets in September “appear to have ‘come off hold’ in November.” In addition, the November total was boosted by “a $750 million BMW factory expansion and a $650 million stadium for the Dallas Cowboys football team.” The combined total for the first 11 months was 0.2% less than in those months of 2007.
Scattered other reports indicate new construction is proceeding. The Associated Press (AP) reported on Thursday, “one government agency in the New York City area isn't making budget cuts. Instead, the Port Authority of New York and New Jersey is proposing a record $3.3 billion in spending on capital projects in its budget for next year. The agency that owns the area's major airports, bridges and tunnels and the World Trade Center site said Thursday it hopes to boost the struggling economy by spending on infrastructure. The capital budget went up 28%, including $1.4 billion for the trade center site and $340 million on a planned rail tunnel.” AP reported on Tuesday, “officials with the U.S. Department of Housing and Urban Development broke ground Tuesday on a $190 million mixed-income community being built atop the former St. Bernard housing development” in New Orleans. The Fayetteville (N.C.) Observer reported on Tuesday, “Army growth at Fort Bragg and Camp Mackall, along with Marine Corps growth in eastern North Carolina, will create $5 billion to $7 billion in military construction projects. The San Francisco Business Times reported on December 5, “Forest City starts construction this week on a $71 million residential redevelopment of the former Public Health Service Hospital in the Presidio,” one of four large apartment projects in the city.
One category that seems headed for further contraction is retail construction as sales slip and more chains close. Seasonally adjusted U.S. retail and food services sales for November skidded 1.8% from October, the Census Bureau reported on Friday, although part of the decline was due to a 15% slump in gas station sales caused by plunging gasoline prices. Sales of retailers other than automotive or gas stations rose 0.3%. “The sour retail market is leading to a flood of store closings,” the Wall Street Journal reported on Friday. “On Thursday, KB Toys Inc. said it has returned to Chapter 11 bankruptcy and will liquidate all of its more than 400 mall-based and outlet stores….Wednesday, Office Depot Inc. announced it plans to shutter 126 stores through next year. The moves are just the latest in a rash of store closings….Through the third quarter, large U.S. retailers announced 4,632 store closings, according to the International Council of Shopping Centers. In all, the trade group projects 148,000 storefronts will be shuttered this year by retailers of all types, including mom-and-pop stores, based on data collected by the Bureau of Labor Statistics. That would be the largest since 2001, when 151,000 locations closed. The group expects next year’s numbers to be as dismal.”
At the end of October, “there were 3.1 million job openings in the United States, and the job openings rate was 2.2%,” BLS reported on Tuesday. “Although the month-to-month changes in job openings, hires, and turnover data are often small, the trends over time are notable. The job openings rate has declined for the past 13 months after remaining essentially flat from August 2006 through September 2007. For the third time in 2008, the hires rate was 3.0% in October. Prior to 2008, the last time the hires rate was this low was May 2003…. Although the job openings rate was little changed at the total nonfarm and total private levels, the rate decreased significantly in October in the construction industry” to 0.8 per 100 employees from 1.5 in September and 1.9 in October 2007. Construction hires rose to 4.8 from 4.0 and 4.4, respectively, but separations (quits, retirements and involuntary separations) rose much more: to 6.2 from 5.7 and 4.7.