Prices climb for 14 industries
The PLANT ENGINEERING construction and maintenance price and cost indexes, up 4.1% and 4.9% respectively, moved practically in tandem during the 12-month period ending May 2004. On the price front, 14 industries registered price increases, while six out of 20 pushed average product prices down during the June 2003 to May 2004 period.
The PLANT ENGINEERING construction and maintenance price and cost indexes, up 4.1% and 4.9% respectively, moved practically in tandem during the 12-month period ending May 2004.
On the price front, 14 industries registered price increases, while six out of 20 pushed average product prices down during the June 2003 to May 2004 period. The iron and steel tubes industry pushed price tags fastest, up 7.6%. Sharp price hikes in the metals arena weren’t the only cause of inflation, however. Prices for structural clay products also grew 5.08%. Softwood plywood tags increased 3.8%.
It’s surprising, though, that inflation did not pick up more quickly, nor was it more widely dispersed. Because underlying manufacturing cost escalation outpaced industry price inflation for most in our market basket of plant construction supplies. Indeed, combining the impact of costs and prices reveals F-minus margin grades for eight industries with two others sporting an F. Upshot: pressure to hike prices is growing.
The automatic environmental controls industry provides a case study. Here the cost of making a unit of output rose 3.9% in the six months ending May 2004. Less than one-sixth of that increase was passed to buyers through higher prices.
To restore margins to average levels requires a 3.2% price increase. Alas, the ability of manufacturers in this industry to hike tags is limited. U.S. end markets that buy controls grew at a year-over-year pace of just 1.3%. Lackluster demand will make price hikes a fairly risky proposition.
On the other hand, the iron and steel tubes industry enjoys an A-plus margin grade. Here a 15.5% price decrease would restore margins to five-year average levels. Softwood plywood and noncurrent-carrying wiring devices also had A-plus margin grades.
Construction & Maintenance Supplies
Average Product Prices % Change During 12 Months Ending
Direct Manufacturing Costs And Margins Grade
Growth in U.S. End Markets % Change During 12 Months Ending
1 Average product price changes are calculated from the producer price index for each 4-digit SIC (standard industrial classification) industry from the U.S. Bureau of Labor Statistics.2 Analyses of each industry’s direct manufacturing cost changes are from Thinking Cap Solutions, Inc.’s proprietary Industry Cost Escalation (ICE) model. The “grade” indicates that recent price/cost changes have produced record high (A+) margins to average margins (C) to record low (F-) margins for the average producer in an industry. Grades of A to A+ mean plant engineers may be able to strike a better bargain with suppliers and better control plant costs.3 Growth in U.S. end markets data are from the ICE model and are estimates of output for the domestic end markets which purchase a given industry’s products.All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: email@example.com).
Wood windows & doors
Other millwork (excl. windows & doors)
Shelving & fixtures
Sewer pipe & other structural clay prod.
Fiberglass & other mineral wool
Iron & steel pipes & tubes
Metal & plastic plumbing fixture fittings
Metal windows & doors
Sheet metal work
Current-carrying wiring devices
Noncurrent-carrying wiring devices
Nonresidential electric lighting fixtures
Automatic environmental controls