The January Bureau of Labor Statistics producer prices index, (PPI) for all commodities was up 0.7% month on month, (m/m). On a 12 month year on year, (y/y) comparison, the all commodities PPI rose 4.4%. Most of the increase in this month’s numbers can be attributed to higher fuel prices. PPI The all commodities index has moved higher in each of the last 14 months on a y/y basis.
Figure 1 shows the 3MMA, materials and components PPI for construction from 2000 to January 2017. The material and construction components PPI increased by +1.0% over three months, +1.7% over six months, +3.4% over 12 months and by +4.7% over a 24 month interval. On a rolling 12 month basis, the material and construction component PPI has advanced for 19 consecutive months.
Figure 2 shows the 3MMA, material and components for non-residential construction PPI from 2000 to January 2017. The non-residential construction PPI rose increased by +1.0% over three months, +2.4% over six months, +4.3% over 12 months and by +6.3% over a 24 month timeframe. The non-residential construction PPI has been increasing at faster clip than the overall commodities index over the past 12 months. On a rolling 12 month basis, the material and construction component PPI has increased in each of the past 15 months.
Table 1 charts the PPI of structure types. This is the cost that a contractor would charge to build the building in question. Five types of structures are examined. On a 3 month y/y comparison, Commercial structures have increased in prices by 1.1% and were up 4.3% y/y. Warehouse structures increased by 0.3%, 3 months y/y and by 3.3% y/y. Office buildings price of construction accelerated by 0.3%, 3 month y/y and by 2.1% over a 12 month period. Industrial structures moved-up 0.6% on a 3 month y/y comparison and by 4.1% on a 12 month basis.
Construction material costs are also increasing; Steel mill products were up by 0.1% on a month on month comparison and higher by 5.3% on a y/y metric. Steel, (and aluminum) prices will jump a great deal more should president Trump accept the recommendations of Wilbur Ross, (Commerce Secretary) and apply 24% across the board tariffs on imported steel, (7.7% for aluminum). President Trump has until the end of April to decide on what if any action to take. Diesel fuel was higher by 3.2% m/m and by 43% y/y contributing to rising trucking costs which are higher by 1.4% m/m and by 5.3% on an annual basis.
Housing starts had a strong month, moving-up 9.7%, (SAAR) in January. Residential building permits are promising more to come, rising 7.4% m/m. Single family permits fell 1.9%, but were more than offset by a 25% m/m surge in multifamily permits. On an annual look, single family permits rose by 7.4%, while multifamily permits managed a 3.0% gain.
At Gerdau, we monitor the PPI which is issued monthly from the Bureau of Labor Statistics because our past analysis has led us to believe that the BLS PPI numbers measure-up to real-world pricing. We feel it is important for us and our customers to know where we are pricing-wise relative to history and how we stack-up against competing materials.