“The growth in materials prices has been outstripping the improvement in construction activity, which implies further downward pressure on industry profit margins.” —ABC Chief Economist Anirban Basu.
In what appears to be an ongoing trend, the cost of construction materials prices increased by 1.4 percent in April, according to the May 12 Department of Labor’s Producer Price Index (PPI) report. Prices are now 7.1 percent higher from the same time last year.
(See Analysis below)
Metal commodity prices continue to edge higher. Iron and steel prices were up 1.3 percent for the month and are up 10.7 percent from April 2010. Steel mill product prices increased by 2.2 percent in April and are 13 percent higher than the same time last year. Nonferrous wire and cable prices jumped 2.7 percent for the month and are up 11.8 percent on a year-over-year basis. Fabricated structural metal products rose 0.8 percent for the month and are 5.4 percent higher than April 2010 levels. Prices for plumbing fixtures and fittings were flat for the month and are up 1.9 percent year-over-over.
Concrete product prices inched up 0.2 percent for the month and are unchanged on a year-over-year basis. Similarly, prices for prepared asphalt, tar roofing, and siding increased by 0.2 percent for the month but were still down 0.3 percent from April 2010. In contrast, softwood lumber prices fell 3.8 percent for the month and are down 7 percent from the same time last year.
Crude energy prices climbed 4.3 percent for the month as natural gas prices soared 9.4 percent. Year-over-year, crude energy prices are up 20.6 percent. Overall, the nation’s wholesale good prices were up 0.8 percent for the month and 6.6 percent higher from April 2010.
“Today’s data on materials prices are interesting in their own regard,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Construction materials prices continue to rise, particularly in the iron and steel, steel mill products, and nonferrous wire and cable categories.
“Without a doubt, many factors are responsible for the ongoing increase in materials prices including speculation by investors in commodity markets, a still weak U.S. dollar, and enormous demand from the emerging world,” said Basu. “However, in recent days, certain key commodity prices have been in decline, which suggest that the producer price data for May could end the recently observed trend.
“Overall, the data are even more interesting when viewed in conjunction with other U.S. construction indicators, but not in a good way. Looking at the rising cost of materials prices, as well as data on employment, construction spending and other construction indicators, it would suggest that construction volumes are either stabilizing or improving slowly,” Basu said. “In reality, the growth in materials prices has been outstripping the improvement in construction activity, which implies further downward pressure on industry profit margins.”