Construction Inputs Nearly Unchanged in August

Construction input prices in August virtually went unchanged from July, according to the Sept. 12 producer price index (PPI) report by the U.S. Labor Department. Although there was a slight decrease since July, the year-over-year increase since last August is still remarkably high at 12.7 percent (see graph below).
Prices for fabricated structural metal products continued to grow, rising 1.5 percent in August, up 14.6 percent since last August. After two consecutive months of price increases, plumbing fixtures and fittings decreased 0.7 percent in August. Nonferrous wire and cable prices continued to rise slightly at 0.4 percent in August, up 5.3 percent since last August. Prices for fabricated ferrous wire products rose 4.0 percent in August, up over 27.9 percent since August 2007. In addition, prices for softwood lumber increased 1.1 percent in August, down 6.1 percent since the same time last year. Asphalt felts and coatings prices continued to post a significant increase, up 12.7 percent from July, and 42.6 percent higher since August 2007.

Prices for crude energy materials dropped 19.4 percent after a 6.9 percent gain in July, with natural gas playing a key role as prices fell 23.9 percent in August after a 7.8 percent increase the month before. Overall, finished energy goods declined 4.6 percent in August after a 3.1 percent increase in July, driving finished goods prices to decrease 0.9 percent in August following a 1.2 percent increase the month before.

What This Means
"While this PPI report shows that construction input prices are stable for the time being, Associated Builders and Contractors (ABC) has been forecasting for months that the tide of negative economic news would eventually begin to impact the nation’s nonresidential construction industry in significant ways," said ABC chief economist Anirban Basu. "The ongoing credit crunch, global economic slowdown, and weak sentiment among those consumers and business owners indicate that this will be the case.

"However, over the last several months, a number of positive developments have emerged with respect to the trajectory of the overall economy – and nonresidential construction, specifically," said Basu. "Commodity prices have begun to decline, setting the stage for reduced inflationary pressures, and permitting the Federal Reserve to maintain low interest rates through the balance of this year and into the next.

"While nonresidential construction activity may flow into the months ahead, the recovery from any period of weak demand for construction can be spotted along the economic horizon," added Basu. "The emerging view is that any downturn in nonresidential construction activity could be significantly briefer than had been previously projected."