Construction input prices saw the largest one-month decrease in more than 20 years, falling 2.8 percent in October 2008 compared to September 2008, according to the producer price index (PPI) report released Nov. 18 by the U.S. Department of Labor.  Despite the dramatic decline, prices remain 10 percent higher than October of last year.  

“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,” said ABC Chief Economist Anirban Basu.  “With construction materials prices generally in retreat, developers will find it easier to make their pro formas work.  However, in the near term, this may make little difference to contractors and others in the construction supply chain since the credit crunch continues with little sign of abatement.”  

Prices for fabricated structural metal products dropped 0.6 percent in October, but are still 15.1 percent higher than one year ago.  Plumbing fixtures and fittings prices dropped 0.1 percent in October but were up 4.1 percent from October 2007.  Prices for fabricated ferrous wire products increased 2 percent in October and are up an astonishing 30.5 percent from a year ago.  Softwood lumber prices saw the biggest monthly decrease in four years in October 2008 falling 7.4 percent compared to September 2008 and down 8.8 percent compared to last year.  In contrast, asphalt felts and coatings prices continue to increase, rising 5.7 percent from last month and up 60.2 percent from a year ago.  

“Even though certain materials costs are declining, developers are finding that the revenue stream from new construction, such as new tenants, is weak,” Basu noted.  “Therefore, revenue projections related to prospective development remain muted.  

“One of the big winners in declining materials prices is the federal government,” Basu continued.  “The next stimulus package will likely possess a significant infrastructure component, and with lower materials prices, 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.”  

Crude energy prices dropped significantly, down 24.9 percent in October, with crude petroleum down 26 percent and natural gas down 29.1 percent.  Gasoline prices dropped 24.9 percent on a monthly basis.  Finished energy good prices fell 12.8 percent from the previous month.  Overall, prices for finished goods decreased 2.8 percent, making it the third consecutive monthly decrease.  

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