What This Means    

Despite recent declines in the prices of some key commodities, such as oil, producer price pressures are still apparent as participants in the supply chain strive to bolster margins while continuing to deal with past price increases.  However, according to Associated Builders and Contractors Chief Economist Anirban Basu, “There is now light at the end of the commodity-price-spike tunnel as a number of factors that had conspired to boost commodity prices have now reversed.

“The dollar has been strengthening against a number of world currencies in recent weeks, including robust currencies such as the euro and yen,” Basu said. “That has helped moderate the price of oil and its derivatives.  Moreover, the world is now edging toward global recession, defined by the International Monetary Fund as a situation in which the world is expanding at a 3 percent rate or less.  The slowing global economy will continue to place downward pressure on commodity prices, ushering in a period of greater optimism,” Basu predicted.

“For contractors, this means that long-awaited relief from surging commodity prices may be at hand, if not this year, then next,” Basu said.  “That will permit many suspended commercial and industrial projects to move ahead, which should make 2009 a stronger environment for new commercial starts than many have been anticipating. 

“Unfortunately, economic weakness is now apparent in many settings, which means the perfect combination of strong demand and more reasonable input prices will remain elusive,” Basu cautioned.  “Additionally, rapid appreciation of the dollar potentially would rob the U.S. economy of its current leading driver of growth: net exports.”