Summary

Construction materials prices continued their downward slide in November for the second month in a row falling to 3.5 percent, according to the December 12 producer price index (PPI) report by the U.S. Labor Department. This figure exceeds the 2.8 percent monthly decline in October, which was previously the largest one-month decrease in more than 22 years. Despite the decline, construction input prices are still up 4.9 percent from the same time last year (see graph below).

Prices for fabricated structural metal products dropped 0.9 percent. This marked the largest monthly decline since 1957. Still, prices are 13.8 percent higher than November 2007.  Plumbing fixtures and fittings prices dropped by 0.6 percent last month, but are up 3.5 percent from one year ago. Nonferrous wire and cable prices fell 10.8 percent from the previous month. However, the price is down 13.1 percent compared to November 2007 – the largest year-by-year decline since 1998. Prices for fabricated ferrous wire products decreased 2.3 percent in November better than offsetting the monthly increase of 2.0 percent the previous month. This marks a 27.2 percent price increase since November of 2007. Softwood lumber prices decreased 2.6 percent since October and are down 7.8 percent from a year ago. Asphalt felts and coatings prices dropped 1.5 percent after having increased for 8 consecutive months. Still, prices are up 57.3 percent from November 2007.

Crude energy prices continued to post major declines, down 18.7 percent for month following a 24.9 percent decline in October. Crude petroleum continued to lead the way dropping 30.2 percent in November. Overall, wholesale prices fell for the fourth straight month, down 2.2 percent for the month. 

What This Means 

“Monthly declines in construction materials prices are now accelerating, consistent with the trajectory of commodity prices and the performance of the global construction economy,” said Anirban Basu, Associated Builders and Contractors’ (ABC) chief economist. “For the first time in 2008, every commodity monitored by ABC posted monthly declines, likely due to a combination of lack of demand and falling oil prices.

“While these price declines will not be sufficient in the near term to generate substantial nonresidential construction momentum, they do set the stage for future recovery which may be brisk,” added Basu.  

“The decline in input prices also makes it more palatable for the incoming Obama administration to forge ahead next year with an infrastructure-based stimulus package, since each dollar of stimulus spending will now be associated with greater corresponding infrastructure formation,” said Basu. “In other words, the administration will be able to purchase more infrastructure for each dollar spent.

“But, in the near term, the bad news has not ended. It is more likely than not that input prices will continue to decline in the months ahead,” remarked Basu. “This is both a reflection of earlier commodity price declines and prevailing economic weakness.”