Falling natural gas prices keep materials costs stable
Construction materials prices were unchanged in August but are 1.7 percent higher than this time last year, according to a Sept. 16 producer price index report by the Department of Labor.
Inputs to nonresidential construction, which also remained unchanged in August, are 1 percent higher than in August 2013.
In general, nonresidential construction remains stable, despite the recent uptick in demand for inputs in North America. There are a number of factors at work, including an unexpectedly weak European economy and a surprisingly strong U.S. dollar. While the euro has been falling in value, the dollar has been rising throughout much of the year against other major currencies including the Japanese yen and British pound. One implication of this has been an increase in the purchasing power of the dollar, which suppresses input price increases.
Crude energy materials prices fell 4.9 percent in August and are 6 percent lower than one year ago. Natural gas prices fell by 12.6 percent in August and have now fallen in five of the past six months; however, on a year-over-year basis, natural gas prices have expanded for 21 consecutive months. Overall, the nation's final demand prices, as measured by the PPI, remained flat in August but are up 2.2 percent year over year.
Considering that this summer has been as mild as the winter was harsh, it's not the slightest bit surprising that energy prices have dropped in recent months. In fact, 80 percent of the decline in overall goods prices, which were down 0.3 percent in August, is attributable to falling energy prices.
The following materials prices increased in August:
- Softwood lumber prices expanded 0.5 percent and are 9.6 percent higher than one year ago.
- Prices for plumbing fixtures expanded 0.1 percent in August and are up 3.1 percent on a year-over-year basis.
- Concrete products prices expanded 0.7 percent in August and are up 4.2 percent on a yearly basis.
- Steel mill products prices rose 0.3 percent for the month and are 4.3 percent higher than one year ago.
- Fabricated structural metal product prices grew 0.2 percent for the month and have expanded 1.3 percent on a year-over-year basis.
- Nonferrous wire and cable prices grew 0.6 percent on a monthly basis but are down 0.9 percent from August 2013.
- Prices for prepared asphalt, tar roofing and siding expanded 1.2 percent for the month but are down 9.1 percent on a year-ago basis.
- Iron and steel prices inched 0.2 percent higher in August and are up 3.5 percent from the same time last year.
Three of the 11 key construction inputs did not experience price increases for the month.
- Natural gas prices shed 12.6 percent in August but are 7.8 percent higher than one year ago.
- Crude petroleum prices fell 2.3 percent in August and are 11.2 percent lower from the same time last year.
- Crude energy materials prices fell 4.9 percent in August and are 6 percent lower year over year.
Anirban Basu is chief economist for Associated Builders and Contractors.