PPI remains tame; multifamily starts surge; MHC expects mild rise for total starts
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The producer price index (PPI) for finished goods was down 0.2%, not seasonally adjusted (and was unchanged, seasonally adjusted), in July but up 2.1% over 12 months, the Bureau of Labor Statistics (BLS) reported on Wednesday. The PPI for inputs to construction—a weighted average of the cost of all materials used in construction plus items consumed by contractors such as diesel fuel—was flat for the month and rose 2.0% year-over-year. The PPI for residential construction inputs fell 0.1% in July and was up 2.1% from a year earlier; and for nonresidential construction, -0.1 and 1.8%. Major construction inputs that dropped in price in July and for the year included copper and brass mill shapes, -2.2% and -6.2%; aluminum mill shapes, -0.7% and -2.3%; and plastic construction products, -0.9% and -0.1%. Previously fast-rising gypsum products prices fell for the second straight month, by 1.6% (but rose 14.5% from June 2012), while lumber and plywood dropped 1.9% (+9.7% over 12 months). Monthly and year-over-year prices rose for diesel fuel (1.9% and 4.4%) and concrete products (0.5% and 3.2%). Prices rose for the month but fell year-over-year for steel mill products (0.4% and -6.1%) and asphalt paving mixtures and blocks (0.6% and -0.7%). PPIs for new nonresidential construction accelerated slightly: schools, 0.6% in July and 1.2% year-over-year; offices, 0.5% and 1.4%; health care construction, 0.6% and 1.5%; industrial buildings, 0.5% and 2.2%; and warehouses, 0.4% and 2.9%. The PPI for new, repair and maintenance work on nonresidential buildings by electrical contractors rose 1.5% and 1.7%; concrete contractors, 0.1% and 1.6%; plumbing contractors, 0 and 1.6%; and roofing contractors, -0.5% and 1.2%.
The number of housing starts increased 5.9% at a seasonally adjusted annual rate in July and 21% from a year ago, the Census Bureau reported today. Single-family starts fell 2.2% for the month but climbed 15% from July 2012, while starts of buildings with five or more units jumped 26% and 34%, respectively. Building permits, a reliable indicator of near-term future starts, rose 2.7% and 12%, as single-family permits fell 1.9% in July but climbed 18% over 12 months and 5+ unit permits gained 13% and 4.5%, respectively.
New construction starts are forecast to rise 6% in dollars this year, following an 8% gain in 2012, McGraw Hill Construction (MHC) reported on Monday. “Single-family housing will advance 28% in dollars, corresponding to a 24% increase in the number of dwelling units…Multifamily housing will climb 23% in dollars and 20% in units…Commercial building will grow 15%, after the 11% increase reported for 2012, although this year’s level of activity in dollar terms will still be 39% less than what was reported during the 2007 peak year. The pace of store construction is picking up, joining earlier gains registered by warehouses and hotels. The increase for office construction will remain relatively subdued in 2013, as more privately financed office projects are countered by fewer government office buildings. The institutional building market will slide an additional 5%, after falling 10% in 2012. While state fiscal health has shown some improvement, state and local budgets remain tight, further dampening school construction. Uncertainty related to hospital mergers and the implementation of the Affordable Care Act is restraining construction of healthcare facilities. The manufacturing building category will drop 8%, as firms hold back on plant investment given the sluggish U.S. economy and slow export markets. Public works construction will rise 3%, helped by growth for highways and bridges. The transportation sector was largely exempt from the federal spending cutbacks under the sequester, and the current year is seeing a number of large bridge projects reach the construction start stage. Electric utilities will see a 40% plunge in the value of new construction starts, following the record high that was achieved in 2012 which included the start of two large nuclear facilities. With new generating facilities coming on line and capacity utilization rates dropping, the near term is seeing downward pressure on new power plant construction.”
Although first-time claims for unemployment insurance this week dropped to the lowest level since late 2007, some large employers continue to announce large cuts in office jobs—and even bigger cuts in office space, an unfavorable omen for office construction. On Wednesday, Cisco Systems said it would eliminate 4,000 jobs, as chief executive John Chambers “said the company is still struggling with a bureaucratic structure in the middle ranks of its workforce,” the Wall Street Journal reported on Thursday. On Tuesday, an H.J. Heinz “spokesman confirmed…that the company is eliminating 600 office positions in the U.S. and Canada,” including 350 in Pittsburgh, the Journal reported on Wednesday. “The ketchup maker said the majority of its remaining 800 people in the Pittsburgh area would come together ‘in an open office environment’ at the company’s downtown location.” The Washington Post reported on July 16 that the federal government’s General Services Administration “has been able to get rid of rented office space in the District and Northern Virginia it no longer needed after cutting the average amount of room required for each employee by more than half. [The Food and Drug Administration is transforming one unit by] hiring hundreds of new drug evaluators without adding space.”
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