January 15, 2009 
Summary
Construction materials prices dropped 2.5 percent in December 2008 from the previous month, according to the January 15th producer price index (PPI) report by the U.S. Labor Department. This represents the third straight month where construction materials prices have fallen bringing the fourth quarter price declines to 8.3 percent. However, despite the drop, construction input prices are 2.7 percent higher than the same time last year (see graph below).
Prices for fabricated structural metal products dropped another 0.9 percent for the month, still up 12.6 percent from levels in December 2007. Plumbing fixtures and fittings prices were unchanged in December. Nonferrous wire and cable prices dropped for the fifth straight month, down 2.9 percent from November and 13.5 percent from December 2007. Prices for fabricated ferrous wire products were down 2.9 percent from November, but are up 23.3 percent on a year-over-year basis. Softwood lumber prices decreased for the fourth straight month, down 0.6 percent from November and 8.4 percent from the same time last year. Asphalt felts and coatings prices dropped 1.1 percent on the month, but are still 51.7 percent higher than a year ago.
Crude energy prices decreased 6.1 percent in December, representing the fifth straight monthly decline. Overall, U.S. wholesale prices dropped 1.9 percent on the month and 7.3 percent in the fourth quarter.
What This Means
“Today’s PPI report represents a mixture of good and bad news,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “The good news is that key construction materials prices are now in sustained decline and this increases the appetite for construction services, all things being equal.
“The bad news is that all things are not equal. These price drops are a function of declining worldwide demand for construction, even in the face of falling construction materials prices,” added Basu.
“This month’s release indicates that input price declines are particularly sharp for nonferrous wire and cable, fabricated ferrous wire products, and asphalt felts and coatings. Naturally, those types of construction activities that utilize these resources stand to benefit the most from the lower prices,” said Basu.
“Given trends in the broader economy, this ongoing lack of demand for new construction will persist for many months to come and probably well into 2010, if not beyond,” stated Basu. “One variable is the upcoming stimulus package being discussed in Washington, and it will be interesting to see if the implementation of this tool to help revive the economy will serve to stabilize construction materials prices.”