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What’s It Cost? – February 2014

Data released in mid-December bore out the impact of reduced global demand and compression of margins on manufactured product prices in 2013, despite rising demand from a rebounding U. S. housing recovery. Only the deep recession in 2009 led to lower inflation in any year going as far back as 1956.

The Bureau of Labor Statistics reported on December 13th that the producer price index (PPI) for finished goods fell 0.5 percent, not seasonally adjusted, in November and rose 0.7 percent over the 12-month period. The PPI for inputs to construction—a weighted average of the cost of all materials used in construction plus items consumed by contractors—also dropped 0.5 percent for the month and rose 1.1 percent compared to November 2012. Given the trends in place, there should be little impact from December in the rate of inflation for the full 12 months of 2013.

The PPIs for inputs to different types of construction all declined for the month and increased only slightly year-over-year: residential, -0.3 percent and 1.5 percent respectively; commercial structures, -0.4 percent and 1.0 percent; total nonresidential, -0.6 percent and 0.7 percent; industrial structures, -0.4 percent and 0.6 percent; and other nonresidential, -0.8 percent and 0.5 percent.

Among the products and materials that showed year-over-year decreases were diesel fuel (-5.6 percent over 12 months); copper and brass mill shapes (-6.0 percent); aluminum mill shapes (-4.3 percent); and asphalt felt and coatings (-1.2 percent); steel mill products (-0.6 percent); architectural coatings (-1.0 percent); and plastic construction products (-1.0 percent). Three indexes that showed significant increases in price for the 12 months were gypsum products, up 14 percent; insulation materials, up 8.2 percent; and lumber and plywood, up 13 percent.

PPIs for new nonresidential construction and for subcontractors all rose year-over-year: offices and warehouses, both up 2.7 percent over 12 months; health care construction,  up 3.0 percent; schools, up 3.3 percent; and industrial buildings, up 4.1 percent. Inflation for nonresidential plumbing contractors rose 4.3 percent; concrete contractors, 2.9 percent; electrical contractors, 1.8 percent; and roofing contractors, 1.3 percent.

Continued recovery in the U. S. housing market should create more demand for the products that showed increases in 2013 but the rate of new construction is not forecasted to be robust again in 2015, meaning that inflation for construction materials should be within a point or two of the overall PPI in 2014.

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  • Bob Biehl
  • Director, Assurance & Business Advisory Services
  • (614) 947-5211