Worrisome situation in Iraq may impact construction prices
Overall construction materials prices remained flat in May but are up 1.6 percent year over year, according to this month’s Producer Price Index supplied by the U.S. Department of Labor.
Nonresidential construction materials prices fell 0.2 percent for the month but are 1.3 percent higher than the same time one year ago.
With construction spending expanding only in fits and starts and given recent evidence of disappointing global economic performance, it comes as little surprise that most construction materials prices are not rising.
For the better part of two years, materials prices have been remarkably stable, which fits neatly into the context of soft expansions in both domestic and global construction volume.
Crude energy materials prices expanded 2.7 percent in May and are 4.8 percent higher than one year ago. Natural gas prices expanded by 3.4 percent in May after declining significantly during the previous two months. Overall, the nation’s wholesale goods prices remained flat in May and have increased 2.5 percent year-over-year.
However, the future could be markedly different with the worrisome situation in Iraq causing oil prices to rise. This price dynamic can impact the prices of other materials, which means that materials price inflation may ensue even in the absence of a meaningful pickup in nonresidential construction activity.
The impact of revelations regarding the metal financing scandal in China may also cause materials to become more volatile, but in that case, the impact may actually be to suppress future price increases.
The following materials prices increased in May:
- Crude petroleum prices increased 3.2 percent in May and are up 3.7 percent from May 2013.
- Nonferrous wire and cable prices gained 0.5 percent on a monthly basis but are down 2.1 percent from May 2013.
- Natural gas prices expanded by 3.4 percent in May and are 13.2 percent higher than one year ago.
- Crude energy materials prices expanded by 2.7 percent in May and are 4.8 percent higher year over year.
Seven of the 11 key construction inputs did not experience price increases for the month. These include:
- Prices for prepared asphalt, tar roofing and siding declined 2.1 percent for the month and are down 5.8 percent from the same time last year.
- Softwood lumber prices fell 0.2 percent in May and are 0.3 percent lower than one year ago.
- Prices for plumbing fixtures remained flat for the month and are up 2 percent on a year-over-year basis.
- Fabricated structural metal product prices remained flat for the month and have risen 1.1 percent on a year-over-year basis.
- Concrete products prices fell 0.1 percent in May but have increased 3.4 percent from the same time last year.
- Iron and steel prices declined 1 percent in May but are up 4.3 percent from the same time last year.
- Steel-mill products prices fell 0.1 percent for the month but are 3.4 percent higher than one year ago.
Anirban Basu is chief economist for Associated Builders and Contractors.