"Lower materials prices make it more likely that construction projects will move forward." —ABC Chief Economist Anirban Basu.
In a reflection of slumping, worldwide demand for construction, materials prices fell 0.2 percent in December, according to the Jan. 18 Producer Price Index (PPI) report by the U.S. Department of Labor. Construction materials prices were down 0.9 percent in the fourth quarter but were 5.3 percent higher than one year ago.
Steel mill prices fell 0.6 percent in December and were down 1.3 percent for the quarter. However, steel mill prices were still up 11.3 percent year over year. Softwood lumber prices decreased 0.4 percent for the month and were 2 percent higher for the quarter, but were down 0.4 percent for the year. Prices for nonferrous wire and cable slipped 0.1 percent for the month, were down 2.4 percent in the fourth quarter, and were down 1.5 percent for the year.
In contrast, iron and steel prices jumped 1.3 percent in December representing the first monthly increase since July. Iron and steel prices were down 1.2 percent for the quarter, but were still up 10.4 percent from the same time last year. Prices for prepared asphalt, tar roofing, and siding increased 1 percent for the month, were down 2.1 percent for the quarter, and were up 2.6 percent year over year. Fabricated structural metal product prices increased 0.4 percent for the month, were up 1.2 percent for the quarter, and were up 5.5 percent from December 2010. Prices for plumbing fixtures and fittings inched up 0.3 percent in December, were up 0.6 percent for the quarter, and increased 2.6 percent year over year. Concrete product prices were up 0.3 percent for the month, up 1.3 percent for the quarter and up 0.9 percent from one year ago.
Crude energy prices slipped 0.1 percent in December. However, prices were up 8 percent in the fourth quarter and finished the year 3.2 percent higher than year-end 2010.
Overall, the nation’s wholesale goods prices decreased 0.1 percent for the month and were down 0.2 percent for the quarter, but are 4.8 percent higher than one year ago.
Analysis
“The ongoing decline in construction materials prices has everything to do with America’s status as the world’s largest and most important safe haven for capital,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Because of economic slowing in China, Brazil, India and other parts of the emerging world combined with well-publicized economic issues in Europe, capital is disproportionately flowing to the United States.
“This has created greater demand for the U.S. dollar, which in turn has increased the value of the dollar against many currencies, including the euro,” Basu said. “The increase in the value of the dollar helped produce last month’s 0.2 percent decline in construction input prices and a 0.9 percent decline for the quarter.
“Naturally, the slowdown in various world economies also contributes to less demand for construction inputs and softening input prices,” said Basu. “While it is possible for construction input prices to begin rising again, there is little chance of a spike in these prices absent a major geopolitical event. This is good news for the nonresidential construction industry because lower materials prices make it more likely that construction projects will move forward.
“One significant exception to the general trend of falling materials prices was the rise in iron and steel prices,” Basu said. “In this category, prices were up 1.3 percent for the month, but this appears to have more to do with weather-related supply interruptions in Brazil and less to do with economic fundamentals.”
