"Profit margins for construction contractors remain under pressure, and the data suggest that they will remain under pressure for some time to come." —ABC Chief Economist Anirban Basu.
The nation’s sluggish economy is keeping the cost of construction materials in check, as prices rose a modest 0.5 percent in November, according to the December 14 producer price index report by the U.S. Labor Department. Overall, prices for construction materials and supplies are 4.6 percent higher than they were a year ago.
As has been the case in recent months, certain products experienced substantial monthly changes in prices. For example, the cost of nonferrous wire and cables surged 4.2 percent in November are up 14.3 percent from the same time last year. Softwood lumber prices rose 2.2 percent in November and are 5.5 percent higher compared to November 2009. Prices for prepared asphalt, tar roofing and sidings rose 0.1 percent on a monthly basis and are up 0.8 percent from a year ago.
On the other hand, prices for plumbing fixtures and fittings, as well as for fabricated structural metal products, remained unchanged. Concrete product prices were also unchanged and are down 0.3 percent compared to a year ago. Iron and steel product prices went down by 0.1 percent in November, but are 16.9 percent higher on an annual basis. The cost of fabricated ferrous wire dropped 1.7 percent last month, but prices are 17.4 percent higher from November 2009. Finally, natural gas prices went down 14.1 percent on a monthly basis and are down 23.5 percent on a year-over-year basis.
Overall, the nation’s wholesale prices – minus food and energy costs – rose by 0.8 percent in November and are up 3.5 percent on an annual basis, mostly due to a 1.7 percent increase in the price for passenger cars.
Analysis
“As has been the case in recent months, food and energy prices continue to surge higher, while core producer prices, including those for construction materials, remain relatively well behaved,” said Associated Builders and Contractors Chief Economist Anirban Basu.
“The implication is that while the cost of construction materials and supplies continue to rise, the prices that purchasers of construction services are willing to pay are not expanding as rapidly. In other words, profit margins for construction contractors remain under pressure, and the data suggest that they will remain under pressure for some time to come,” Basu said.
“Though the U.S. economy is now accelerating, which implies that demand for output is rising, the improving performance of the broader economy may help lift the fortunes of the U.S. dollar, which would result in less rapid increases in commodity prices in general,” said Basu.
“All eyes today are focused on the Federal Reserve as they hold their last meeting of the year. While no policy changes are expected, they will likely review their decision to buy $600 billion worth of government bonds in an effort to revive the economy, a controversial move that is cause for concern by many lawmakers and economists,” Basu said.
To view the previous producer price index report, click HERE.