"Today’s producer price index data supports the proposition that construction materials prices can rise even when the prices of oil and natural gas are falling." —ABC Chief Economist Anirban Basu
The price of construction materials and supplies rose 1.1 percent in April, according to the May 18 producer price index (PPI) report by the U.S. Labor Department. This marks the sixth straight monthly increase. Prices for construction materials are up 5.7 percent from the same time last year.
Prices for iron and steel jumped 5.1 percent last month and are 37.7 percent higher from April 2009. Similarly, steel mill product prices are up 5.1 percent and are up 24.7 percent from the same time last year. Softwood lumber prices continue to trend higher as they increased 4.5 percent for the month and are 28.5 percent higher on a year-over-year basis. Nonferrous wire and cable prices increased 1.6 percent last month and are up 12.4 percent over the past 12 months. Prices for fabricated structural metal products increased 1.1 percent in April, but are down 1.5 percent compared to the same time last year. Price fluctuations in plumbing fixtures and fittings continue to be marginal as they increased 0.3 percent for the month and are up 0.8 percent from April 2009.
In contrast, prices for prepared asphalt, tar roofing, and siding fell 0.6 percent for the month and are down 5.8 percent from April 2009. Prices for concrete products also fell 0.3 percent last month and are down 2.2 percent from the same time last year.
Crude energy prices slid 5.9 percent in April and natural gas prices fell by 19.2 percent. Over the past three months, crude energy prices are down 10.8 percent after jumping up 24.5 percent from the previous three month period.
Overall, the nation’s wholesale prices are down 0.1 percent for the month, but are 5.7 percent higher from the same time last year. However, core prices, which exclude energy and food, are only up 1 percent from April 2009.
Analysis
“Today’s producer price index data supports the proposition that construction materials prices can rise even when the prices of oil and natural gas are falling,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “A number of nonfuel related prices continue to edge higher in April, most notably iron and steel. This seems to be a reflection of an ongoing pattern of construction materials price increases attributable in part to robust levels of economic activity in China and other parts of the emerging world.
“Western economists predict that China’s economy will expand roughly 12 percent this year. For its part, India and her 1.1 billion people are expected to experience 8 percent growth in economic activity in 2010. Correspondingly, the emerging world is scooping up loads of commodities and materials, driving global prices higher in the process,” Basu said.
“This pattern may be repeated in May as oil prices continue to slide. Yesterday, oil prices touched below $70 per barrel – a potential source of relief for construction contractors that are working hard to manage their cost and bids in the midst of a still sluggish economy,” said Basu. “However, given the global dynamics, other construction materials and supplies may continue to experience rising price levels making the overall cost of construction more expensive at a time when purchasers of construction materials remain particularly price sensitive.”
