ABC Reports: Construction Materials Prices Decrease 0.6 Percent In October

“Much of the gyration in prices that we observe during the course of a year has more to do with investment portfolios and emerging economies than domestic construction.” —ABC Chief Economist Anirban Basu.

As evidence of a downward trend, construction materials prices fell 0.6 percent in October, according to the Nov. 15 Producer Price Index (PPI) report by the U.S. Department of Labor. Construction materials prices are still 6.9 percent higher than in October 2010.

Nonferrous wire and cable prices dropped 5.8 percent in October, but are still up 0.6 percent compared to the same time last year. Iron and steel prices slipped 0.1 percent for the month, but were 14.4 percent higher during the past twelve months.

In contrast, steel mill product prices increased 0.4 percent from last month and are 13.6 percent higher than one year ago. Prices for plumbing fixtures and fittings inched up 0.3 percent for the month and are up 2.8 percent year over year. Prices for fabricated structural metal products increased 0.4 percent in October and are 5.7 percent higher than one year ago.

Concrete product prices increased 0.4 percent for the month and were up 0.6 percent during the past twelve months. Prices for prepared asphalt, tar roofing and siding products rose 2.5 percent in October and are 7.5 percent higher than one year ago. Softwood lumber prices jumped 3.6 percent for the month and are up 5.1 percent year over year.

Crude energy prices fell 2.2 percent in October as natural gas prices dropped 5.9 percent. Crude energy prices are still 9.8 percent higher than in October 2010.

Overall, the nation’s wholesale good prices slipped 0.3 percent for the month, but are 6.1 percent higher than one year ago.

Analysis

“It would be easy to interpret today’s PPI report on the monthly decline in construction materials prices as simply a reflection of the weak U.S. construction economy, and leave it at that,” said Associated Builders and Contractors Chief Economist Anirban Basu. “However, more is involved than simply the waning demand for material for purposes of construction and the performance of the U.S. economy.

“Much of the gyration in prices that we observe during the course of a year has more to do with investment portfolios and emerging economies than domestic construction,” said Basu.

“Specifically, investors have become increasingly apprehensive about the stability of Europe and evidence of economic slowing in developing economies such as China and Brazil,” Basu said. “This appears to have resulted in less demand among investors for commodities related to construction, which has produced a general softening of prices.

“It is quite possible that this trajectory will continue as the global economy faces additional headwinds,” said Basu. “However, any decrease in the cost of construction materials is always good news for owners, developers and construction contractors.”

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