Construction prices inch up in June

July 20, 2009
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Prices for construction materials inched up 1.0 percent in June 2009, according to the July 14 producer price index report by the U.S. Labor Department. Still, prices are down 6.1 percent from June 2008.

Material prices feeding the increase include prepared asphalt and tar roofing, up 5.6 percent from May and 38.9 percent higher from June 2008. Softwood lumber prices jumped up 1.7 percent in June but are still down 18.1 percent from last year. Nonferrous wire and cable prices were up slightly at 0.8 percent from May but are down 14.3 percent from a year ago.

Meanwhile, fabricated structural metal product prices continue to dip, down 0.7 percent for the month, and down 4.2 percent on a year-over-year basis. Prices for fabricated ferrous wire products were unchanged on a monthly basis and are down 3.0 percent from June 2008. Plumbing fixtures and fittings prices were unchanged for the second consecutive month and have inched up 0.5 percent in the past 12 months.

Crude energy material prices climbed 10.9 percent in June, prices for natural gas rose 3.5 percent and crude petroleum jumped up 20.3 percent. Overall, finished goods prices edged up 1.8 percent on the month but are still down 4.6 percent on a year-over-year basis.

 The magic of economics rests with its self-equilibrating mechanisms, designed to prevent economies from severe overheating or intolerable contraction.

 Producer prices represent a perfect example. When the economy is expanding, producer prices rise, making it more expensive for suppliers to expand, which limits the pace of expansion. However, with the economy shrinking as it is now, producer prices tend to decline, which induces cost-efficient supply and limits the extent of the downturn.

Recent reports indicate that a combination of factors continues to place upward pressure on construction input prices despite the ongoing global economic downturn. One of those factors is China, which has introduced its own stimulus package of several hundreds of billions dollars with an intense focus on infrastructure.

Moreover, the U.S. stimulus package is also likely having an impact on materials prices due to the anticipation of significant future construction. However, input prices are not declining as one would otherwise predict.

Anirban Basu is chief economist with Associated Builders and Contractors, a national association representing 25,000 merit shop construction and construction-related firms within the U.S.

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