Construction Materials Prices Edge Up in August

"The bottom line is that the global economy is improving." —ABC Chief Economist Anirban Basu

After nearly one year of decline, prices for construction materials rose 1.0 percent in August, according to the September 15 producer price index (PPI) report by the U.S. Labor Department. Despite the increase, on a year-over-year basis, construction materials prices are down 7.4 percent.

Materials experiencing increases include softwood lumber, up 10.9 percent for the month, but still down 8.7 percent from a year ago. Nonferrous wire and cable prices jumped 6.2 percent in August, but are still down 9.8 percent from August 2008.

In contrast to the overall increase in construction materials prices, prepared asphalt, tar roofing and siding products dropped 7.5 percent in August, but are 7.9 percent higher from August 2008. Prices for fabricated structural metal products inched 0.1 percent lower on a monthly basis and are down 8.7 percent from August 2008. Prices for plumbing fixtures and fittings remain fairly steady, down 0.1 percent over the past three months and up 0.4 percent on year-over-year basis.

Crude energy prices increased 6.9 percent in August, largely driven by crude petroleum prices, which surged 19.6 percent during the month. However, crude energy prices are still down 45.7 percent from August 2008. Overall, the nation’s wholesale level increased 1.7 percent in August, but is still down 4.3 percent from the same time last year.

What This Means
“Unlike previous releases of the producer price index, today’s data is readily susceptible to intuitive interpretation,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “The bottom line is that the global economy is improving.

“The economies of Japan, Germany, the U.S. and many others now appear to be expanding along with nations that never entered the global recession, such as China and India. The impact of this expansion has lead to the current increase and future demand for construction materials, which explains the turnaround in prices,” said Basu.

“Given the expectation of ongoing improvement in the global economy, and the generally falling U.S. dollar, it is anticipated that construction materials prices will rise in the months ahead, though it is possible that the pace of increase will be moderate,” said Basu.

“Few expect the global economy to race ahead in the face of so many headwinds – including rising unemployment in a number of key economies,” said Basu. “However, an unexpected sharp decline in the value of the U.S. dollar would likely result in more rapid increases in construction materials prices over the next several quarters.”