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By: Alex Carrick on January 12th, 2017

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An Amazing Correspondence of Construction Material Cost Movements in the U.S. and Canada

Economic News

Several of the primary sources for construction material cost information north and south of the border are the Producer Price Index (PPI) numbers from the U.S. Bureau of Labor Statistics (BLS) and the Industrial Product Price Index (IPPI) and Raw Materials Price Index (RMPI) series from Statistics Canada.

2017-01-12-US-Canada-PPI-Graphic

The latest (November 2016) results from both countries appear in accompanying Tables 1 and 2.

The summary lines in both tables have been highlighted with gray shading. What stands out is that there has been an amazing correspondence of construction material cost movements.

The year-over-year change in the components making up ‘final demand construction’ in the U.S. were +0.8%. That’s the exact same rate of increase as was recorded for ‘total construction’ in Canada.

Versus three years prior, U.S. ‘final demand construction’ was +5.1%. That figure differed little from Canada’s +5.2%, over the same time frame, for ‘total construction’.

The ‘final demand construction’ figure for the U.S. is calculated and provided by the BLS. There are also sub-category indices for ‘private capital investment’ (+0.9% year over year) and ‘government construction’ (+0.4% year over year), as well as for several type-of-structure sub-categories.

The results for the five type-of-structure sub-category indices currently move in a tight range, with school buildings lowest (+0.1% year over year), followed by industrial buildings (+0.3%) and health care buildings (+0.4%). At the upper end are office buildings (+1.3%) and warehouses (+1.4%).

Canada’s ‘total construction’ materials cost index has been calculated from Statistics Canada’s background building product figures by ConstructConnect-CanaData and is weighted according to the shares of overall activity contributed by residential, nonresidential building and civil/heavy engineering work.

In turn, the residential (+4.6% year over year), nonresidential building (-0.8%) and engineering/civil (-2.2%) cost indices have their own specific weightings of material components. That’s because lumber is more important in residential construction; steel and concrete play bigger roles in nonresidential structures; and fossil fuel based products (e.g., asphalt) come to the fore in civil/engineering.

Speaking of asphalt, it’s a building product that demonstrates how quickly prices can sometimes alter course. Versus three months previously, the price of asphalt in November of last year was -15.9% in the U.S. and -22.0% in Canada.

Over a 12-month span, the biggest construction material cost increases in the U.S., from Table 1, were in ‘iron and steel scrap’ (+41.8%) and ‘prestressed concrete’ products (+11.9%). ‘Iron and steel scrap’ fell into a deep trough in late 2015. As a result, its more recent outsized percentage gain was relative to a very low base.

Over the most recent three months, the largest U.S. construction material cost increases occurred in ‘coal’ (+5.8%) and ‘copper and wire cable’ (+6.7%). Coal and copper are two commodities beginning to show a rebound in pricing. Late last year, Chinese authorities announced a reduction in the number of days allowed for coal mining each month. The anticipated cutback in production caused coal prices in international trading markets to shoot skywards much faster than is being shown in November’s PPI results. December’s data should be considerably livelier.

Iron ore and metallurgical coal are key components in steelmaking. Beijing has promised a huge addition to its railroad infrastructure spending program − +$500 billion USD from now out to 2020 − and that will mean the need to lay down plenty of new steel track.

In Canada, the greatest year-over-year increases in construction material costs have come in iron ore (+57.0%) and ‘waferboard and particle board’ (+16.0%), with ‘clay products/brick’ (+8.8%) being sprightly as well. Over the three months between August and November in 2016, it was iron ore (+23.6%) and diesel fuel (+9.9%) leading the way.

The U.S. list of construction material components is longer than Canada’s. The PPI and IPPI numbers are supposed to represent prices for products as they leave a producer’s front gate. In Canada, for some products, there are no producers, only imports.

Graphs 1 through 6, therefore, show U.S. versus Canadian cost movements for only those construction materials that can be matched up handily: softwood lumber; ready-mix concrete; gypsum; glass; asphalt; and diesel fuel.

To facilitate comparisons in the graphs, all of the series have been reindexed to a same starting point, January 2000 = 100.0.

Readily apparent are the similarities in patterns of price movements − or, from the flip side, construction cost movements − between the two countries for each of the six specific building products.

Although it should be added that by the end of the period covered in late 2016, the dotted line for Canada appears above the solid line for the U.S. in five of the six graphs, meaning Canadian prices have moved higher faster (e.g., softwood lumber; gypsum; and glass) or haven’t fallen as quickly (asphalt and diesel fuel). The one exception is ready-mix concrete.

Table 1: U.S. Producer Price Index (PPI) Results
% Change in the November 2016 Index from:
3 Years 1 Year   6 months 3 months 1 month
Ago Ago   Ago Ago Ago
 
Product/Good/Service/Commodity              
Final Demand Construction 5.1%   0.8%   0.3%   0.9%   0.1%
Construction for private capital investment 5.2% 0.9%   0.4% 0.9% 0.0%
Construction for Government 4.9% 0.4%   0.1% 0.8% 0.1%
New warehouse building construction 5.9% 1.4%   0.6% 1.3% 0.0%
New school building construction 4.6% 0.1%   -0.2% 1.0% 0.1%
New office building construction 6.2% 1.3%   0.5% 0.7% 0.0%
New industrial building construction 4.4% 0.3%   0.3% 1.3% -0.1%
New health care building construction 3.3% 0.4%   0.1% 0.6% 0.1%
Architectural & engineering services 6.4%   1.6%   0.6%   0.3%   0.1%
Construction machinery & equipment 4.0% 1.0%   0.3% 0.2% 0.2%
Asphalt -51.8% -24.1%   -6.6% -15.9% 0.2%
Plastic construction products 2.4% 0.3%   0.5% 0.0% -0.1%
Softwood lumber -0.2% 3.9%   -1.1% -3.6% -1.1%
Hardwood lumber -0.9% 4.6%   2.3% 2.3% 0.2%
Millwork 6.2% 2.3%   0.6% 0.1% 0.0%
Plywood -4.3% -3.8%   -1.8% -5.5% -2.6%
Gypsum 12.7% 3.2%   -1.2% 0.0% 0.4%
Insulation materials 5.9% 3.7%   0.7% 0.1% 0.5%
Construction sand, gravel & crushed stone 12.5% 4.8%   0.4% 0.3% 0.1%
Cement 18.9% 6.2%   1.3% 0.6% 0.5%
Ready-mix concrete 13.8% 3.9%   1.1% 0.7% 1.1%
Precast concrete products 9.4% 1.2%   0.5% 0.5% 0.4%
Prestressed concrete products 13.1% 11.9%   1.5% 0.1% 0.0%
Brick (clay) 3.9% 0.9%   0.6% 1.0% 0.8%
Coal -7.3% 0.9%   -1.3% 5.8% 0.9%
Iron ore -5.3% -11.4%   -6.9% -10.7% -3.0%
Iron and steel scrap -39.3% 41.8%   -16.1% -4.1% 11.4%
Steel bars, plates and structural shapes -18.6% -4.0%   -1.3% -0.4% -1.3%
Fabricated structural metal products 1.2% 0.6%   0.8% -0.4% -0.5%
Flat glass 11.3% 3.7%   0.5% 0.0% 0.2%
Lighting fixtures 2.7% 0.1%   -0.2% 0.1% -0.4%
Plumbing fixtures & brass fittings 4.7% -0.3%   0.1% 0.0% 0.0%
Heating equipment 6.1% 1.5%   1.3% 0.4% -0.4%
Copper wire & cable -16.9% 0.6%   5.4% 6.7% 0.5%
Fiber optic cable -0.7% -0.3%   -0.3% -0.5% 0.2%
Regular gasoline unleaded -47.2%   -4.3%   -3.2%   -2.1%   -9.6%
Diesel Fuel -48.9% -6.3%   8.7% 5.0% -1.3%
Jet Fuel -47.1% -3.2%   11.2% 12.3% -1.5%
Natural gas -25.4% 32.3%   49.2% 12.8% 0.1%
Natural gas to electric utilities -5.1% 2.5%   4.8% 0.6% -3.1%
Commercial electric power 2.7% 0.9%   -0.7% -6.7% -3.1%
Industrial electric power 5.9% -1.3%   2.1% -7.3% -2.5%
Residential electric power 5.0% 0.9%   0.6% -3.6% -0.3%
Commercial natural gas -3.0% 7.8%   14.3% 4.4% 3.3%
Industrial natural gas -13.8% 2.3%   10.6% 2.9% 0.8%
Residential natural gas -1.7% 8.4%   10.5% 2.2% 0.7%
Construction materials 2.5%   1.6%   0.6%   -0.4%   -0.1%
Data source: Bureau of Labor Statistics (1982 = 100.0 is the base for all indices).
Table: ConstructConnect.
Table 2: Canada Industrial Product Price Index (IPPI) and
Raw Materials Price Index (RMPI) Results
% Change in the November 2016 Index from:
3 Years 1 Year   6 Months 3 Months 1 Month
Ago Ago   Ago Ago Ago
 
Type of Construction Indices:              
Residential 11.4% 4.6%   0.0% 0.8% 0.2%
Nonresidential Building 6.2% -0.8%   0.0% 1.0% 0.2%
Engineering/Civil -1.5% -2.2%   0.0% 0.3% 0.1%
Total Construction 5.2% 0.8%   0.0% 0.7% 0.2%
Key Aggregates:              
Lumber and other wood products 8.4% 2.9%   0.0% 0.8% 0.0%
Primary ferrous metal products 0.7% 0.5%   0.0% -0.4% 0.3%
Primary non-ferrous metal products 12.0% 12.0%   0.0% 1.2% 2.3%
Fabricated metal products and construction materials 10.3% 3.5%   0.0% 0.5% 0.2%
Machinery and equipment (includes HVAC) 5.9% 0.6%   0.0% 0.5% 0.2%
Electrical, electronic and telecommunications 10.0% 0.1%   0.0% 1.4% 0.5%
Cement, glass, other non-metallic minerals 2.4% -0.5%   0.0% 0.9% 0.0%
Petroleum and coal products -25.4% -1.1%   0.0% 3.7% -2.2%
Chemicals and chemical products -0.7% 1.0%   0.0% 3.3% 0.9%
Construction Inputs:              
Softwood lumber (spruce-pine-fir) 4.9% 7.3%   0.0% -0.7% -0.3%
Veneer and plywood 10.2% 1.0%   0.0% -3.5% -1.0%
Waferboard and particle board 11.5% 16.0%   0.0% 6.6% 0.0%
Shakes and shingles and wood siding 9.8% -3.2%   0.0% -1.0% 0.0%
Wood windows and doors 6.8% 2.1%   0.9% 0.0% 0.0%
Glass and glass products (except automotive) 11.6% -0.2%   0.0% 0.3% 0.0%
Ready-mix concrete -0.2% -1.6%   0.0% 2.5% 0.0%
Clay products (brick) 9.8% 8.8%   0.0% 0.1% 0.1%
Fabricated structural metal 12.6% -1.3%   0.0% 0.4% 0.4%
Prefabricated metal buildings 36.1% 3.5%   0.0% 1.9% 0.5%
Metal windows and doors 7.7% 5.0%   0.0% 0.0% 0.0%
Metal roofing 4.4% -0.3%   1.0% 0.0% 0.0%
Bolts, nuts, screws, washers, fasteners 15.4% 5.0%   0.0% -0.1% 0.0%
Hardware 14.5% 2.4%   0.0% 1.2% 0.5%
Plastic pipe fittings 13.9% 2.0%   0.8% 0.0% 0.0%
Plastic plumbing fixtures 8.9% 1.4%   0.0% 0.5% 0.3%
Electric lamps, lighting fixtures -1.6% 0.5%   1.0% 0.0% 0.0%
Concrete pipes and fittings -5.3% -1.5%   0.0% 0.0% 0.0%
Asphalt -33.0% -15.8%   0.0% -22.0% -1.5%
Gasoline (regular) -25.7% -4.0%   0.0% -1.4% -5.9%
Diesel fuel -27.3% -2.0%   0.0% 9.9% 0.7%
Natural gas -6.5% -0.7%   0.0% 6.1% 0.4%
Gypsum 44.4% 4.4%   0.0% 3.4% 1.8%
Iron ore -31.3% 57.0%   0.0% 23.6% 25.3%
Stone 4.1% -0.2%   0.9% 0.0% 0.0%
Data source: Statistics Canada (Cansim Tables 329-0075, 329-0076 and 330-0008).
Table: ConstructConnect.
Graph 1: Movement in Construction Material Costs: Softwood Lumber
(U.S. versus Canada)
Movement in Construction Material Costs: Softwood Lumber<br />
(U.S. versus Canada)
Data sources: Producer Price Index (PPI) series U.S. Bureau of Labor Statistics (BLS) and Industrial Product Price Index (IPPI) & Raw Materials Price Index (RMPI) series Statistics Canada.
Chart: ConstructConnect.
Graph 2: Movement in Construction Material Costs: Ready-mix Concrete
(U.S. versus Canada)
Movement in Construction Material Costs: Ready-mix Concrete<br />
(U.S. versus Canada)
Data sources: Producer Price Index (PPI) series U.S. Bureau of Labor Statistics (BLS) and Industrial Product Price Index (IPPI) & Raw Materials Price Index (RMPI) series Statistics Canada.
Chart: ConstructConnect.
Graph 3: Movement in Construction Material Costs: Gypsum
(U.S. versus Canada)
Movement in Construction Material Costs: Gypsum<br />
(U.S. versus Canada)
Data sources: Producer Price Index (PPI) series U.S. Bureau of Labor Statistics (BLS) and Industrial Product Price Index (IPPI) & Raw Materials Price Index (RMPI) series Statistics Canada.
Chart: ConstructConnect.
Graph 4: Movement in Construction Material Costs: Glass
(U.S. versus Canada)
Movement in Construction Material Costs: Glass<br />
(U.S. versus Canada)
Data sources: Producer Price Index (PPI) series U.S. Bureau of Labor Statistics (BLS) and Industrial Product Price Index (IPPI) & Raw Materials Price Index (RMPI) series Statistics Canada.
Chart: ConstructConnect.
Graph 5: Movement in Construction Material Costs: Asphalt
(U.S. versus Canada)
Movement in Construction Material Costs: Asphalt<br />
(U.S. versus Canada)
Data sources: Producer Price Index (PPI) series U.S. Bureau of Labor Statistics (BLS) and Industrial Product Price Index (IPPI) & Raw Materials Price Index (RMPI) series Statistics Canada.
Chart: ConstructConnect.
Graph 6: Movement in Construction Material Costs: Diesel Fuel
(U.S. versus Canada)
Movement in Construction Material Costs: Diesel Fuel<br />
(U.S. versus Canada)
Data sources: Producer Price Index (PPI) series U.S. Bureau of Labor Statistics (BLS) and Industrial Product Price Index (IPPI) & Raw Materials Price Index (RMPI) series Statistics Canada.
Chart: ConstructConnect.