Article source: ConstructConnect

If stagflation is to occur (i.e., a period of no or slow growth accompanied by high inflation), as is being projected by many prognosticators, one of its accompanying features will be a moderation in new homebuilding activity. Neither in the United States nor in Canada has such a turn of events become evident just yet. The canary installed in stagflation’s mine shaft to warn, through an interruption in its backing vocals, of possible serious economic troubles ahead, has not yet ceased its chirping.

U.S. housing starts in April at 1.724 million units, seasonally adjusted and annualized (SAAR), were little different from March’s figure of 1.728 million units. Also, they were down only slightly from the highest monthly number in more than a decade, February’s 1.777 million units.

Furthermore, residential building permits are still running ahead of starts. The permits number nationally in April was 1.819 million units SAAR. Permits have lain between 1.8 million and 1.9 million units (SAAR) for five months in a row.

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Article source: ConstructConnect

The breakouts in U.S. construction material input costs showed few signs of abating in March.

Table 1 presents year-over-year and latest-three-month percentage-change results for 15 Producer Price Index (PPI) series that bear on the materials cost side of construction projects. March 2022’s year-over-year percentage changes were in double digits in 13 of the 15 series; were +20% or more in 10 of the 15 series; and were +30% or more in 6 of the 15 series.

Beyond the big and not unexpected year-over-year energy-related cost jumps for diesel fuel (+63.8%), gasoline (+61.5%) and asphalt (+36.9%), the next greatest increases were recorded for steel bars, plates, and structural shapes (+45.4%), aluminum mill shapes (+43.7%) and particle board and OSB (+36.8%). The energy-related cost climbs tie to oil and gas supply interruptions and uncertainty created by the military action between Russia and Ukraine.

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The breakouts in U.S. construction material input costs showed few signs of abating in March.

Table 1 presents year-over-year and latest-three-month percentage-change results for 15 Producer Price Index (PPI) series that bear on the materials cost side of construction projects. March 2022’s year-over-year percentage changes were in double digits in 13 of the 15 series; were +20% or more in 10 of the 15 series; and were +30% or more in 6 of the 15 series.

Beyond the big and not unexpected year-over-year energy-related cost jumps for diesel fuel (+63.8%), gasoline (+61.5%) and asphalt (+36.9%), the next greatest increases were recorded for steel bars, plates, and structural shapes (+45.4%), aluminum mill shapes (+43.7%) and particle board and OSB (+36.8%). The energy-related cost climbs tie to oil and gas supply interruptions and uncertainty created by the military action between Russia and Ukraine.

Over a shortened period, running from December 2021 to March 2022, percentage-change increases were led by diesel fuel (+43.8%), softwood lumber (+41.2%), particle board and OSB (+41.0%), gasoline (+40.3%) and plywood (+31.6%).

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Article source: ConstructConnect

There’s much subject matter to be wrestled with in the pool of recent public and private sector data releases, so let’s leave our pina coladas (non-alcoholic, of course) beside our deck chairs and dive right in.

(1) U.S. inflation, at least as measured by the year-over-year change in the Consumer Price Index (CPI-U), eased a little in April. It edged back to +8.3% from +8.5% in March. The ‘core’ rate, which sets aside notably price-volatile items in food and energy, also retreated a bit, to +6.2% y/y from +6.5% y/y in the prior month.

(2) Inflation in Canada moved, to a minor degree, in the other direction, from +6.7% y/y in March to +6.8% y/y in April. Canada’s CPI, excluding food and energy, stayed the same as in the previous month, +4.6% y/y. The Bank of Canada, when it’s assessing inflation, focuses on three specially created measures which it has labeled ‘common’, ‘median’ and ‘trim’. The average for those three indices rose to +4.2% y/y in April from +3.9% y/y in March.
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Article source: ConstructConnect

U.S. current (March) inflation of +8.5% year over year for the All-items Consumer Price Index (i.e., known as CPI-U, with the ‘U’ signifying that it’s for urban consumers) is the highest this century. It’s more than four times greater than the +2.0% figure usually accepted as the desirable target. A little inflation is judged to be a good thing for the economy. Through making it easier to pay off loans, it greases the wheels of industry.

What +8.5% is not, though, is unique in a historical context. From 1951 through 1981, there were 59 months, or the equivalent of nearly five years, in which CPI-U exceeded +9.0% y/y. The most notable periods of extreme inflation occurred from January 1974 through July 1975 and from December 1978 through November 1982. Peak inflation was +14.8% y/y, recorded in March 1980.

There’s a great tradition among economists of arguing over what causes inflation. The discourse has pitted money supply theorists against those who keep a wary eye on excessive fiscal deficits. Plus, there’s the cost-push versus demand-pull impact to be sorted out.

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Article source: ConstructConnect

Table 1 is a one-place depiction of the key percentage-change metrics for the 2022 Q1 put-in-place (PIP) construction dollar volume statistics from the Census Bureau.

Total year-to-date spending is ahead by +12.0, owing more to residential, at +18.6%, than to nonresidential, +5.8%. The dollar volumes on which the percentage changes are based are in ‘current’ dollars. ‘Constant’ dollars would factor out inflation.

Given the exceptional advances in material input costs over the past year (see ‘Spikes Everywhere’ article here), and some decent-sized jumps in compensation rates as well, there’s a good chance the nonresidential percentage change year to date (+5.8%) would be close to zero or even possibly negative, if a price index were applied to the results.

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Article source: ConstructConnect

April was not a good period for stock markets. In North America, on a month-to-month basis, the DJI was -4.9%; the TSE -5.2%; the S&P 500, -8.8%; and NASDAQ, -13.3%.

On a year-over-year basis, only the Toronto Stock Exchange (TSE), which has a heavy weighting of resource sector firms, managed a gain, +8.7%. (Commodity prices have been on an upswing.) The S&P 500 was -1.2% y/y; the DJI, -2.7%; and NASDAQ, -11.7%.

Versus its 52-week high, NASDAQ was a stunning loser, at -23.9%. A drop of -20.0% or worse is known as ‘bear’ territory. The Russell 2000 index, for small cap firms, was also bearish in April, at -24.2% compared with its peak.

Several of the biggest high-tech firms have been missing profit targets (Meta), or suffering unexpected and uncharacteristic losses (Amazon), or seeing reductions in their number of subscribers (Netflix).

Runaway inflation and its unwelcome companion, interest rate hikes, have also been suppressing the investment sentiment of day traders, hedge funds and brokerage houses.

The net effect has been a pummeling of valuations unprecedented in a decade plus.
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