ABC - Construction Input Prices See Another Increase in July

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CONSTRUCTION INPUT PRICES SEE ANOTHER INCREASE IN JULY (08/20/2008)

The price of construction inputs climbed 2 percent in July, posting an 11.9 percent increase compared to July 2007, according to the U.S. Labor Department’s producer price index (PPI) released August 19. This marks the largest year-over-year jump in the last 20 years.

“There is 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,” said ABC’s Chief Economist Anirban Basu. “The world is 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.

“For contractors, this means that long-awaited relief from surging commodity prices may be at hand, if not this year, then next,” Basu predicted. “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.”

Prices for fabricated structured metal products continued to grow, rising 1.6 percent in July over June and 10.1 percent during the past six months. Plumbing fixtures and fittings increased another 1.4 percent in July after reporting the same increase in June. Nonferrous wire and cable prices rose 1.8 percent in July, compared to a 2.8 percent drop in June, and fabricated ferrous wire products jumped 6 percent in July, bringing the total increase since July 2007 to 24 percent.

Prices for softwood lumber saw their first decrease since February, falling 3.4 percent in July. Asphalt felts and coatings prices soared 12 percent in July compared to June, bringing the year-over-year increase to 27.9 percent. Prices for crude energy materials rose 6.9 percent in July at a seasonally-adjusted rate, following an increase of 5.4 percent in June. In addition, natural gas prices rose another 7.8 percent in July after a 5.2 percent jump a month earlier. The total price for all finished goods increased 1.2 percent in July after rising 1.8 percent in June.

“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.”

To read the full analysis, click here.