Area Economy

Eight is enough: Construction prices fall again

March 18, 2016
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Construction input prices fell for the eighth consecutive month during February, according to an analysis of the Bureau of Labor Statistics Producer Price Index.

Construction input prices fell 0.6 percent on a monthly basis in February and have dropped 3.7 percent on a yearly basis. Inputs to nonresidential construction fell even further, declining 0.7 percent from January and 3.8 percent from February 2015. Prices for eight of the 11 key inputs declined on a monthly basis in February, while nine of the 11 key inputs experienced year-over-year price declines.

Weak global growth and the prospects of a strengthening U.S. dollar have helped suppress commodity and therefore material prices. The February PPI data do not reflect the more recent increases in various commodity prices, ranging from oil to iron ore, and it is quite likely that construction materials prices will rebound some in March. However, a significant run-up in prices is unlikely in the coming months, as little has changed to support stronger commodity prices.

Financial markets remain shaky. Brazil and Russia remain in recession and Chinese growth continues at its worst pace in at least two decades. Europe continues to recover only slowly, and the United States continues to expand at a lackluster pace. The Japanese central bank recently introduced negative interest rates matching what European monetary policy makers have had in place for quite some time.

By contrast, the presumption is that the Federal Reserve will be raising interest rates later this year.

Three key input prices expanded in February on a monthly basis:

  • Prices for prepared asphalt and tar and roofing and siding products increased by 0.5 percent from January but are down 1.5 percent from February 2015.
  • Concrete product prices expanded by 0.3 percent month-over-month and 2.5 percent year-over-year.
  • Natural gas prices rose 1.1 percent for the month but are down 22.3 percent from the same time last year.

Eight key input prices declined on a monthly basis:

  • Crude petroleum prices fell 9 percent from January and are down 48.5 percent from February 2015.
  • Unprocessed energy material prices fell 3.2 percent on a monthly basis and 28.8 percent on a yearly basis.
  • Fabricated structural metal prices products fell 0.5 percent month-over-month and 2.4 percent year-over-year.
  • Prices for steel mill products fell 1 percent on a monthly basis and are down 17.7 percent on a yearly basis.
  • Prices for plumbing fixtures and fittings fell 0.2 percent for the month but are up 0.3 percent from the same time last year.
  • Nonferrous wire and cable prices fell 4 percent on a monthly basis and 8.4 percent on a yearly basis.
  • Iron and steel prices fell 0.3 percent month-over-month and have declined 17.6 percent year-over-year.
  • Softwood lumber prices fell 0.4 percent for the month and 6.4 percent from the same time last year.

Anirban Basu is chief economist of Associated Builders and Contractors.

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