Sunday, May 24, 2009

Construction costs should stabalize or decrease: Continuing on a downward trend, the price of construction materials fell 0.4 percent in April 2009

Construction Materials Prices Trend Lower in April

Continuing on a downward trend, the price of construction materials fell 0.4 percent in April 2009, according to the May 14 producer price index (PPI) report by the U.S. Labor Department. On a year-over-year basis, construction input prices dropped 3.7 percent (see graph below).

Asphalt felts and coatings prices dropped 10.5 percent in April, the largest month-over-month decline in 55 years. Prices for fabricated structural metal products fell by 1.0 percent from March making the seventh consecutive montly decline, but are still up 0.7 percent on a year-over-year basis. Fabricated ferrous wire prices decreased 0.7 percent in April while maintaining a year-over-year increase of 2.9 percent.

In contrast, softwood lumber prices increased, for the first time in seven months, by 1.6 percent. Still, year-over-year, softwood lumber prices are down 10.2 percent. Plumbing fixtures and fittings prices rose by 0.5 percent compared to the previous month, and are 1.1 percent higher than a year ago.

Crude energy prices went up by 2.9 percent in April after a 1.6 percent increase in March, driven by an increase in crude petroleum prices of 9.2 percent. Overall, a spike in food costs drove the nation’s wholesale prices up 0.3 percent from March, but prices are still down 3.5 percent on a year-over-year basis.

“Given the weakness of the broader economy, lower construction materials prices are a necessary ingredient to stimulate nonresidential construction in segments not directly impacted by the American Recovery and Reinvestment Act of 2009," said Associated Builders and Contractors (ABC) Chief Economicst Anirban Basu. "It is hoped that producer prices will remain low or continue to decline allowing developers to move ahead with projects, in part, because of limited financing opportunities.

“However, there remains significant debate regarding the recent run-up in oil and other commodity prices. Some believe that this is a reflection of rising inflationary expectations, which are emerging primarily due to a combination of extreme monetary and fiscal stimulus,” added Basu. “Others believe that there are more mundane explanations, including growing seasonal demand for certain commodities and growing confidence in the performance of the global economy as 2010 approaches.

“Whatever the explanatory factors, any consequential increase in construction materials prices would be unfortunate from a broader national perspective,” said Basu. “The nation remains in the midst of a period characterized by substantial infrastructure investment, and rising construction materials prices would ultimately hurt the ability of federal, state and local governments to purchase more infrastructure projects.”

Read more in ABC Associated Builders and Contractors, Inc.

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