Materials prices continue downward trend

August 24, 2009
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Construction materials prices continued to move downward in July falling 0.6 percent, according to the Aug. 18 producer price index report by the U.S. Labor Department. Overall, construction materials prices are 8.6 percent lower than one year ago.

Prices for fabricated structural metal products slipped for the 10th straight month, down 1.0 percent for July and 6.9 percent lower from last July. Nonferrous wire and cable producer prices decreased by 0.8 percent in July and are down 16.9 percent year-over-year. Producer prices for prepared asphalt and tar roofing and siding products decreased 1.6 percent from last month but are still up 23.5 percent from July 2008.

Softwood lumber prices jumped 6.7 percent in July but are down 10.1 percent on a year-over-year basis. Plumbing fixtures and fittings prices remain unchanged on a monthly basis and are up just 0.5 percent from a year ago.

Crude energy prices decreased 6.2 percent last month, led by a 15.9 percent decrease in crude petroleum prices. Finished energy goods prices fell 2.4 percent in July as gasoline prices dropped 10.2 percent for the month. Overall, wholesale prices inched downward 0.9 percent in July following two consecutive months of increases.

To even the most seasoned economist, the producer price index data for July are a source of major perplexity. A variety of factors suggest that producer prices should now be stabilizing worldwide, but that is just not the case.

Despite growth in Asia, Europe and North America, and the implementation of stimulus packages in various parts of the world — most notably in China and the U.S. — construction materials prices continue to trend downward.

The fact that producer prices are still falling is a reflection that the global economy remains fragile. It is also a reflection of the notion that recovery is unlikely to be brisk, including in the U.S. The expectation remains that, at some point in the not-too-distant future, producer prices will stabilize and begin to rise in accordance to historical patterns.

The U.S. recession is now either over or ending, and growing concern regarding future inflation will likely contribute to stable or rising producer prices.

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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