Construction input prices jumped 10.4 percent over the past year and rose 1.8 percent between May 2008 and June 2008, according to the producer price index report released July 15 by the U.S. Department of Labor.  ABC Chief Economist Anirban Basu predicted that these prices will likely continue to rise.  

“The most recent data indicate that there will be additional upward pressure on construction input prices in the month ahead as suppliers race to keep up with rising raw material costs,” said Basu. “Commodity prices worldwide continue to surge due to a confluence of factors including continued weakness in the U.S. dollar, geopolitical tensions, stock market speculation and continued rapid growth among emerging markets in Asia, Latin America and even portions of Africa.”  

Fabricated structured metal products saw prices rise 1.6 percent in June 2008 compared to May 2008, bringing the growth over the past year to 11.4 percent.  Plumbing fixtures and fittings edged up 1.4 percent and prices for softwood lumber inched up 1.8 percent in June 2008.  Nonferrous wire and cable continued a rollercoaster ride as prices fell 2.8 percent in June, compared to a 2.2 percent rise in May and a 3.1 percent drop in April.  In addition, fabricated ferrous wire products increased 3.2 percent in June 2008 compared to May, climbing a staggering 17.7 percent over the past year while asphalt felts and coatings prices rose 3.6 percent in June 2008 and 15.3 percent over the past year.   

“For commercial contractors and developers, this comes as negative news for two reasons; first, developers faced with rising construction costs are finding it increasingly difficult to generate stable materials price estimates that support moving projects ahead,” Basu noted. “As a result, the industry can expect far fewer nonresidential construction starts in the year ahead.  Secondly, the Federal Reserve’s monetary policy, which has thus far been focused on the alleviation of the nations’ credit crunch and on supporting economic expansion, may have to refocus its attention on combating inflation, leading to higher interest rates and stunting the momentum of the commercial and industrial construction sector.”  

Crude energy materials prices rose another 5.4 percent in June 2008 at a seasonally-adjusted rate after climbing 13.1 percent in May, making the total rise in price over the past six months 132.7 percent.  Intermediate energy goods rose 48.9 percent and finished energy goods rose 38.1 percent over the same six-month period.  Natural gas also continued to rise by 5.2 percent in June 2008 after a 17 percent jump in May.  

“With energy prices continuing to soar, construction related to America’s production of energy generating facilities is likely to accelerate, particularly in light of recent decisions by policy makers to fast track energy-related investment,” Basu noted.  The weak dollar will also likely induce significant manufacturing-related construction in the quarters ahead as American goods producers gain market share overseas and continue to expand their export base.”  

To see the entire report, click here.