ABC Reports: Construction Materials Prices Continue To Climb Despite Industry Weakness

“With the global economy showing signs of strain and with the U.S. economy hitting a soft patch, the likelihood is that price increases will not be as rapid going forward and prices may begin to decline in the months ahead.” —ABC Chief Economist Anirban Basu.

Construction materials prices rose another 0.9 percent in May after rising 1.4 percent in April, according to the June 14 producer price index report released by the U.S. Labor Department. Prices are 7.5 percent higher than a year ago.

(See Analysis below)

Inputs that experienced an increase include asphalt coatings and felts, which rose 3.4 percent in May and are up 2 percent for the year, and prepared asphalt, which rose 2.7 percent for the month, but are only up 0.5 percent compared to May 2010. In addition, steel mill prices rose 1.1 percent in May and are 10.1 percent higher than last year. Prices for fabricated ferrous wires were up 0.6 percent on a monthly basis and 6.5 percent on an annual basis. Plumbing fixtures and fittings prices rose 0.6 percent in May and are up 2.6 percent from one year ago. Iron and steel prices only slightly increased for the month, 0.2 percent, but are up 9.1 percent compared to May 2010 (on a non-seasonally adjusted basis).

Concrete prices were unchanged both for the month and for the year. Prices for nonferrous wire products fell 2.8 percent in May, but are still up 10.4 percent from one year ago. Softwood lumber prices declined 3.3 percent in May and are down nearly 12 percent year over year.

Crude energy prices declined 5.2 percent in May, while gasoline prices rose 2.7 percent to reach a level nearly 50 percent higher than this time last year. The overall producer price index rose only 0.2 percent in May, compared to a 0.8 percent increase in March and a 0.7 percent increase in April.

Analysis

“Although prices for construction inputs continued to rise in May, the pace of increases decelerated in general,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “This is good news. The construction industry would benefit from a decline in materials costs, and commodity prices appear headed in that direction. With the global economy showing signs of strain and with the U.S. economy hitting a soft patch, the likelihood is that price increases will not be as rapid going forward and prices may begin to decline in the months ahead. This already can be seen in the price of oil, which is now down to $98 per barrel.

“Unfortunately, the rise in materials prices that already has occurred likely slowed the pace of commercial and industrial construction recovery,” Basu said. “Because of a rise in costs, certain projects were postponed, which is reflected in ABC’s Construction Backlog Indicator data and in the Architecture Billings Index.”

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