The Philippine Statistics Authority (PSA) released the price indices of construction materials for the wholesale and retail sectors for the month of August.
The July-August data represent two-thirds of the 3Q’s performance.
On a monthly basis, the Construction Material Retail prices (CMRPI) showed some signs of improvements last July (+1.09%) when compared to June (+.88%) but was largely stagnant relative to August (+1.14%).
And price changes in August 2017 would look relatively small when compared to the August 2016 (+1.88%).
From the PSA: The annual change of carpentry materials index rose by 0.1 percent from -0.7 percent in the previous month. In addition, higher annual increases were registered in the indices of masonry materials at 2.6 percent; painting materials and related compounds, 1.4 percent; and tinsmithry materials, 0.5 percent. Meanwhile, slower annual gains were noted in the indices of electrical materials at 0.7 percent; plumbing materials, 1.0 percent; and miscellaneous construction materials, 5.6 percent
Since the CMRPI represents the arithmetic average of price quotations from sixteen retail markets, the index provides clues of mostly private sector spending on construction activities in the Metropolis.
On the other hand, the Construction Material Wholesale Price Index (CMWPI) jumped 2.78% in August 2017 from 1.71% in July and was likewise significantly higher from 1.65% in August 2016.
From the PSA: “A double-digit annual increase was still noted in fuels and lubricants index at 16.3 percent. Contributing also to the uptrend were higher annual mark-ups posted in the indices of the following commodity groups: Sand and Gravel (2.7%); Concrete Products (0.7%); Hardware (1.4%); Lumber (2.6%); Reinforcing Steel (1.5%); Structural Steel (2.8%); Tileworks (2.4%); and Painting Works (1.3%). Meanwhile, slower annual gains were seen in the indices of doors, jambs, and steel casement at 3.3 percent and plumbing fixtures and accessories/waterworks, 0.9 percent. Moreover, annual decreases were still registered in the indices of cement at -4.0 percent; plywood, -0.7 percent; and PVC pipes, -0.2 percent. The rest of the commodity groups either retained their previous month’s rate or had zero growth.
Since the CMPWI is “used for the computation of price escalation of construction materials for various government projects as indicated in the Presidential Decree (PD) 1594”, then the price index should serve as a barometer for the public works projects.
As one would note, when the BSP reactivated its NG debt monetization program, money supply growth bounced to 13.3% in June and 13.5% in July. The spike in money supply pushed the wholesale price index higher. Such acceleration of liquidity suggests that government spending was financed by both the BSP and from debt issuance.
NG’s Debt issuance would sop up money or liquidity from the system. Hence, the BSP used the debt monetization window to offset the draining of liquidity
At the same time, government officials disclosed that infrastructure projects rose 11% P297.5 billion from P267.7 billion a year ago.
Moreover, the PSA noted that cement prices PLUNGED 4% in August!
Cement prices have contracted for FOUR straight months! And the rate of shrinkage has only intensified!
The data shows of immense distortions from cement sales and production. I am assuming here that the government’s data reflects real conditions and applies generally.
Production soared in 2015 even as prices plummeted! Awesome.
When cement prices partially recovered in 2016, which peaked in October, producers smelled a “build build build” boom and thus immediately ramped up production. So when construction demand plunged in 2Q (see construction permits), the supply glut became pronounced.
Prices dived!
And there has been little trace of real economy construction boom in the dimension of credit growth and in online job placements (note: Jobstreet data is informal: I compile the numbers based on its posting every Thursday afternoon)
Despite the downtrend, construction sector’s credit growth rate remains high though. The banking system’s construction loan portfolio growth has vacillated between 19% to 21% in April to July. Considering the doldrums in construction activities, where has the torrent of money released to sector flowed to?
The above data points to several insights. One, the public construction activities seem to have been pump primed. Two, private construction activities have yet to catch up. Three, a revival of price volatility is likely to increase project costs or cost overruns, and thus reduce the incentives for the private sector to participate. These are symptoms of the crowding out dynamic in motion.
Again, except for public works, there have been little signs of the revitalization of general construction activities. Moreover, the cement industry appears to be mired in the muck of slowing demand and oversupply.
Cross-checking what one reads from media and from ‘analysis’ by ‘establishment experts’ should help in the filtering out of noises from signals. Some propagated information constitute propagandas.
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