"The increase in input prices during the past year likely has been enough to squeeze profit margins further for contractors." —ABC Chief Economist Anirban Basu.
Construction materials prices rose 1.4 percent in March, the largest monthly increase since April 2011, according to the U.S. Labor Department’s April 12 producer price index (PPI) report. On a quarterly basis, construction materials prices increased 2.7 percent and are 3.8 percent higher than March 2011. Following a similar pattern, nonresidential construction materials prices moved up 1.6 percent for the month, 2.9 percent for the quarter and 4 percent year over year.
Softwood lumber was one of the materials experiencing a price increase in March, jumping 2.4 percent to reach levels 1.7 percent higher for the quarter and 0.5 percent higher compared to one year ago. Plumbing fixtures and fittings saw price increases of 0.6 percent for the month, 1 percent for the quarter and 3.3 percent year over year. Concrete product prices experienced increases of 0.3 percent for the month, 0.6 percent for the quarter and 2 percent year over year.
In addition, prepared asphalt, tar roofing and siding prices inched up 0.2 percent for the month, but are still down 3.2 percent for the quarter and are flat compared to March 2011. Iron and steel prices also inched up 0.1 percent for the month, and are up 0.4 percent for the quarter and 0.1 percent year over year.
Nonferrous wire and cable prices decreased in March, falling 1.3 percent for the month, 0.5 percent for the quarter and 4 percent year over year. Steel mill prices decreased 0.6 percent for the month, but were up 1.3 percent for the quarter and 0.4 percent during the last 12 months. Prices for fabricated structural metal products slipped 0.2 percent for the month, but were unchanged for the quarter and increased 2.6 percent compared to March 2011.
Crude energy materials prices dropped 9.2 percent in March and are down 7.4 percent for the quarter and 6 percent compared to the same time last year. Crude petroleum prices fell 11.2 percent for the month. Overall, the nation’s wholesale goods prices were flat for the month, 0.5 percent higher for the quarter and 2.8 percent higher than one year ago.
Analysis
“Most construction materials prices behaved well in March,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “The exception in this report was softwood lumber prices, which rose aggressively after a year of minimal increases. But a host of other input prices—including prepared asphalt, iron and steel, and fabricated structural metal products—barely budged.
“However, inputs into nonresidential construction are up 4 percent for the year, which is cause for concern,” Basu said. “Given lingering excess capacity among the contracting community and a general lack of pricing power, the increase in input prices during the past year likely has been enough to squeeze profit margins further for contractors. In addition, recent months have generally seen less vigorous increases in materials prices, which is a reflection of many factors, including a weak construction spending recovery in the United States.
“Perhaps the biggest surprise in this month’s report was the sharp decline in crude energy prices,” Basu said. “Analysts have been predicting for months that oil and other energy prices are set to surge, in part because of geopolitics. But that did not occur in March, creating a source of relief for an industry that uses substantial amounts of diesel fuel to transport materials, in addition to using many other forms of energy throughout the construction process.”
