Construction materials prices fall again in September

October 26, 2009
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Despite a modest gain in August, prices for construction materials and supplies decreased 0.4 percent in September, according to the Oct. 20 producer price index report by the U.S. Labor Department. Since September 2008, construction material prices are down 8.2 percent.

Construction materials prices trending lower were led by softwood lumber, down 2.4 percent in September and off 10.8 percent from the same time last year. Plumbing fixtures and fittings prices are down 0.2 percent on both a monthly and annual basis. Fabricated structural metal product prices dropped 0.4 percent for the month and are down 9.4 percent from September 2008.

On the other hand, prices for nonferrous wire and cable inched up 0.5 percent, representing the second straight monthly increase. However, on a year-over-year basis, prices are still down 7.8 percent. Meanwhile, prices for prepared asphalt, tar roofing and siding products increased 0.3 percent for the month and are up 0.9 percent from September 2008.

Crude energy prices fell 5.4 percent in September, which is attributable largely to a 13.8 percent drop in natural gas prices for the month. Overall, the nation’s wholesale prices fell 0.6 percent for the month and are 4.8 percent lower than September 2008 levels.

After rising for the previous month, the trend of falling producer prices was reestablished in September. There appears to be a competition of forces impacting producer prices, and the net result has led to reasonably small shifts in prices on a month-over-month basis.

The falling U.S. dollar, coupled with federal stimulus spending, is helping to support prices. However, the generally weak economy and ongoing declines in the volume of nonresidential construction are consistent with falling prices.

Though many markets continue to be battered by a lack of construction volume, contractors are benefiting from a period of relatively stable input prices, which allows for simpler pricing and bid submissions. Nonetheless, the future path of producer prices remains very unclear.

Were the dollar’s decline to accelerate, producer prices would edge higher. Still, as various stimulus packages across the world wind down, it is quite possible that producer price declines will become more pronounced over the next six to 18 months.

Anirban Basu is chief economist for the Associated Builders and Contractors.

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