November 18, 2008 
Summary
Construction input prices fell 2.8 percent in October, the largest decrease since the base year of 1986 according to the November 18 producer price index (PPI) report released today by the U.S. Labor Department. Despite the monthly decline, construction input prices are still 10 percent higher than October of last year (see graph below).
Prices for fabricated structural metal products dropped by 0.6 percent in October on a monthly basis, but are still 15.1 percent higher than year-ago levels. Plumbing fixtures and fittings prices dropped slightly in October (0.1 percent) and are up a relatively modest 4.1 percent from one year ago. Nonferrous wire and cable prices dropped 7.7 percent on a monthly basis, the largest decline since 1949. The monthly decrease brings the year-over-year change down 5.4 percent from the October 2007 level. Prices for fabricated ferrous wire products increased 2 percent in October following a slight decrease in price the month prior. Prices are up an astonishing 30.55 percent from a year ago. Softwood lumber prices decreased 7.4 percent from September, the largest monthly decrease since November 2004 and are now down 8.8 percent from last October. Surprisingly, asphalt felts and coatings prices continued to increase, up 5.7 percent from last month and still up 60.2 percent from a year ago.
Crude energy prices dropped significantly, down 24.9 percent in the month with crude petroleum (down 26 percent) and natural gas (down 29.1 percent) leading the declines. Gasoline prices dropped 24.9 percent on a monthly basis. Finished energy good prices fell 12.8 percent from September. Overall prices for finished goods decreased 2.8 percent, the third consecutive monthly decrease.
What This Means
Even as the broader economy continues to deteriorate and is increasingly frustrating development and construction efforts, the seeds of the next recovery are being sown. With construction materials prices now generally in retreat, developers will find it easier to make their pro formas work. In the near term, this may make little difference to contractors and others in the construction supply chain since the credit crunch continues on with little sign of abatement. Moreover, even though certain costs are declining, prospects for the attraction of tenants, visitors and other drivers of revenue remain weak, which means that revenue projections related to prospective development remain muted.
One of the big winners is the federal government. The next stimulus package will likely possess a significant infrastructure component, and with materials prices falling, the federal government will be able to purchase more infrastructure per dollar. This would appear to be an advantageous moment for the nation to begin to build its 21st century infrastructure, since such investment would address both short- and long-term economic considerations.