Construction Input Prices Edge up Slightly in September

Construction input prices edged up 0.5 percent in September, according to the October 15 producer price index (PPI) report by the U.S. Labor Department. They finished the month at 13.1 percent higher than one year ago (see graph below).
Prices for fabricated structural metal products grew 1.3 percent in September, up 16.2 percent over the past year, making it the largest year-over-year increase since January of 2005. After a slight decrease last month, plumbing fixtures and fittings prices were unchanged on a monthly basis and up just 3.3 percent since September 2007. Nonferrous wire and cable prices declined 2.0 percent since August, but still up 5.4 percent since last September. Fabricated ferrous wire product prices decreased slightly by 0.1 percent from August, still up significantly from last September by 27.7 percent. Along with these metal products, softwood lumber prices decreased by 0.5 percent from last month and are down 4.0 percent from a year ago. Asphalt felts and coatings prices showed a slowed decrease, but still up 4.9 percent from August and 51.6 percent from last September.

Crude energy material prices declined 11.7 percent since August, a significantly slower rate than the 19.4 percent drop witnessed last month. On a quarterly basis, crude energy materials dropped 66.5 percent in the third quarter after surging 152.2 percent in the second quarter. Overall prices for all finished goods decreased 0.4 percent in September continuing a decline for the second consecutive month.

What This Means
"The ongoing deflation in materials prices is beginning to help shift the development environment for the better," said Associated Builders and Contractors’ (ABC) Chief Economist Anirban Basu. "With construction materials prices relatively flat as indicated in both the August and September PPI reports – and likely to decline even more in the near future – the developer/owner community will have an easier time creating a stable budget for their commercial and industrial construction projects," said Basu.

"In the broader context, the number of square footage being constructed is in decline and the pipeline for new business opportunities is likely to remain thin as banks stay on the defensive and state and local governments look to slash budgets," added Basu. "This will be true for several months to come despite the best efforts of various policymakers to end the credit crunch.

"Another stimulus package is now being discussed in policy circles that would, among other things, boost infrastructure spending across the nation," said Basu. "However, in the absence of passage and implementation of such a package, spending on roads, schools and other essential projects will likely be diminished as state and local governments strive to balance their budgets without significantly increasing tax burdens on an already angry and cash-strapped electorate."