Construction Materials Prices Lower in October

"Commodity prices are now generally drifting higher, a sign that the recent declines in construction materials prices may have largely come to an end." —ABC Chief Economist Anirban Basu

Prices for construction materials and supplies modestly fell 0.2 percent in October, according to the November 17 producer price index (PPI) report by the U.S. Labor Department. Overall, construction materials prices are 5.8 percent lower on a year-over-year basis.

Ready mixed concrete prices are down 0.6 percent from September to October, and down 0.4 percent from the same time last year. Cement is 0.1 percent lower from the previous month and down 1.7 percent on a year-over-year basis. Softwood lumber prices are down 1.7 percent from September and down 5.8 percent from the same time last year.

In contrast, prices for prepared asphalt, tar roofing, and siding products in October rose 3.2 percent higher from the previous month, and are up 0.1 percent on a year-over-year basis. Steel mill products were up 2.7 percent from September, but down 24.9 percent from October 2008. Nonferrous wire and cable prices are up 1.2 percent for the month, but are down 0.9 percent from a year ago. Prices for fabricated structural metal products are up 0.3 percent, the first increase since October 2008. However, on a year-over-year basis, prices are 9.0 percent lower. Plumbing fixtures and fittings prices increased 0.2 percent on a monthly basis and are 0.5 percent higher from October 2008.

Crude energy prices escalated 8.3 percent in October as natural gas prices jumped 16.3 percent. Gasoline prices were up 1.9 percent, but down 16 percent from the same time last year. Overall, the nation’s producer prices in October rose 0.3 percent higher than the previous month, but are still down 1.9 percent compared to October 2008.

What This Means
“Commodity prices are now generally drifting higher, a sign that the recent declines in construction materials prices may have largely come to an end,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Key materials prices have already been rising briskly in recent weeks, most notably oil and natural gas.

“There are a number of reasons for the recent uptick in commodity prices. Some observers cite the resurgence of the Chinese economy and the infrastructure-oriented focus of its stimulus package – an economic boost that constituted roughly 13 percent of their gross domestic product,” said Basu.

“In addition, the ongoing recoveries of countries with which the Chinese trade, as well as the recovery of the Indian economy, have also contributed to rising demand for construction materials,” said Basu. “Global investors have also been seeking asset classes that help them diversify away from global equities.

“Meanwhile, equity markets around the world have been rebounding since March, making many investors nervous. Commodities represent a logical mechanism to which diversification can occur and this also helps explain the recent rebound in commodity prices and the stabilization of construction material prices,” said Basu.