Price of construction materials rises in November

December 21, 2009
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The price of construction materials and supplies rose 0.6 percent in November, the first increase in two months, according to the producer price index report by the U.S. Labor Department. However, the overall price of construction materials remains 2.3 percent below levels from one year ago.

Nonferrous wire and cable prices were up 1.6 percent last month and are up 12.4 percent from a year ago. Prices of fabricated ferrous wire products are down 12.5 percent on a year-over-year basis. Prices for fabricated structural metal products fell 0.4 percent in November and are down 8.8 percent over the past 12 months.

Softwood lumber prices increased by 1.9 percent last month, but are still down 1.6 percent on an annual basis. Prices of plumbing fixtures and fittings were unchanged last month and are just 0.5 percent higher than in November 2008. Prices of asphalt felts and coatings fell 2.5 percent last month and are down 7.4 percent from a year ago.

The jump in energy prices drove the wholesale level higher. The price of natural gas went up 25.5 percent last month, though that price is still 16.3 percent lower on a year-over-year basis. Gasoline prices shot up 14.2 percent last month and are 35.9 higher compared to the same month one year ago. Crude energy prices went up by 12.2 percent in November and are up 8.4 percent from November 2008.

Overall, the nation’s wholesale prices rose 1.8 percent on a monthly basis and are up 2.4 percent on a year-over-year basis.

Increasingly, the producer price index for construction industries has come to reflect the growing economic recovery that has been in place since late summer 2009. Prices are now rising in general, a reflection of higher asset prices across the world, as well as the demand for materials in stimulus-impacted construction segments in the U.S. and in other nations, including China, India and Brazil.

To date, increases in construction materials prices have been benign and have not created the chaos in bidding that occurred earlier in the decade when prices were far more volatile, making it difficult to establish firm bids for lengthy construction projects. However, many industry stakeholders had been hoping that construction materials prices would continue to decline on a monthly basis. That did not occur in November.

Lower prices would induce more construction projects to move forward, thereby accelerating the recovery of the nonresidential construction sector. Unfortunately, rising materials prices are likely to delay the segment’s ultimate recovery.

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

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