Construction Input Prices Fall in October

Construction input prices fell 2.8 percent in October – the largest one-month decrease since July 1986 – according to the November 18 producer price index (PPI) report by the U.S. Labor Department. Despite the dramatic decline, construction input prices remain 10 percent higher than October of last year. 

Prices for fabricated structural metal products dropped by 0.6 percent in October, but are still 15.1 percent higher than one year ago. Plumbing fixtures and fittings prices dropped slightly in October by 0.1 percent, however they are up a relatively modest 4.1 percent from October 2007. Nonferrous wire and cable prices dropped 7.7 percent – the largest monthly decline since 1949. The decrease brings the year-over-year change down 5.4 percent from October 2007. Prices for fabricated ferrous wire products increased 2 percent in October following a slight decrease in price the month prior. Still, prices are up an astonishing 30.55 percent from a year ago. Softwood lumber prices decreased 7.4 percent from September, the largest monthly decrease since November 2004, and are now down 8.8 percent from last October. In contrast, asphalt felts and coatings prices continue to increase, rising 5.7 percent from last month and up 60.2 percent from a year ago.

Crude energy prices dropped significantly, down 24.9 percent in October, with crude petroleum down 26 percent and natural gas down 29.1 percent. Gasoline prices dropped 24.9 percent on a monthly basis. Finished energy good prices fell 12.8 percent from the previous month. Overall, prices for finished goods decreased 2.8 percent, making it the third consecutive monthly decrease.

What This Means
"Even as the broader economy continues to deteriorate, and is increasingly frustrating development and construction efforts, the seeds of the next recovery are being sown," said Associated Builders and Contractors’ (ABC) Chief Economist Anirban Basu. "With construction materials prices generally in retreat, developers will find it easier to make their pro formas work. However, in the near term, this may make little difference to contractors and others in the construction supply chain since the credit crunch continues with little sign of abatement," said Basu.

"Even though certain materials costs are declining, developers are finding that the revenue stream for new construction, such as new tenants, is weak," added Basu. "Therefore, revenue projections related to prospective development remain muted.

"One of the big winners in declining materials prices is the federal government," said Basu. "The next stimulus package will likely possess a significant infrastructure component, and with lower materials prices, the federal government will be able to purchase more infrastructure per dollar. This would appear to be an advantageous moment for the nation to begin to build its 21st century infrastructure, since such investment would address both short- and long-term economic considerations."