Prices for inputs to construction industries fell by 0.1 percent in April, ending a two-month streak during which material prices expanded by greater than 0.4 percent.
Prices have now fallen in six of the previous eight months and input prices are also down on a year-over-year basis, falling 4 percent since April 2014. This represents the greatest year-over-year decline since October 2009 and year-over-year input prices have now declined for five straight months after expanding in each of the previous 60 months.
Prices for inputs to nonresidential construction showed a similar decline, falling 0.1 percent for the month and 5.1 percent year-over-year. Crude petroleum prices expanded for only the second time in the previous 10 months, growing by 13.1 percent, the largest month-over-month increase since November 2011.
Construction input prices have now fallen by greater than 3 percent on a yearly basis in each of the year's first four months. This is only the second time price increases have been so suppressed over such a prolonged period and the first since the middle of the financial crisis in the second and third quarters of 2009. That said, the underlying dynamics of this period of downward trending prices are fundamentally different than those experienced in 2009.
Two major factors contributed to April's falling prices.
The strong U.S. dollar, which has expanded by more than 10 percent against the currencies of the United States' primary trading partners, has neutralized any underlying inflationary pressures.
The other key factor in the subdued price growth is lower energy prices. Consider that prices for crude petroleum, natural gas and crude energy materials are all more than 40 percent lower than in April 2014.
The U.S. economy continues to disappoint as the expectation had been that the U.S. economy would significantly outperform the balance of the advanced world's economy this year. While there is still a chance this could happen, several sectors of the economy continue to underperform, none worse than retail. Data released in early May indicate sales remain flat despite improved weather.
One of the byproducts of a slow economic start has been a weakening dollar. Most forecasters had predicted the U.S. dollar would march toward parity with the euro. That hasn't happened, and as of last week, one euro buys $1.14. A weakening dollar is consistent with rising input prices and should lead to renewed price growth in the near future. For now, however, the impact of previous increases in the value of the dollar is dominating price dynamics.
Only four of the key materials prices increased in April.
- Softwood lumber prices expanded 2.6 percent but are 4.7 percent lower than one year ago.
- Crude petroleum prices expanded 13.1 percent in April but are down 50.4 percent from the same time last year.
- Crude energy materials prices gained 1.7 percent in April but are 42.2 percent lower year-over-year.
- Concrete products prices grew 1.3 percent in April and are up 5.1 percent on a yearly basis.
Seven of the 11 key construction inputs did not expand for the month.
- Fabricated structural metal product prices dropped 0.5 percent lower for the month but have expanded 0.8 percent on a year-over-year basis.
- Natural gas prices fell 11.8 percent in April and are down 47.9 percent from the same time one year ago.
- Prices for plumbing fixtures fell 0.1 percent in April, but are up 1.5 percent on a year-over-year basis.
- Prices for prepared asphalt, tar roofing and siding fell 2.5 percent for the month and are down 1.9 percent on a year-ago basis.
- Iron and steel prices fell 2 percent in April and are down 14.5 percent from the same time last year.
- Steel mill products prices fell 3.4 percent for the month and are 8.7 percent lower than one year ago.
- Nonferrous wire and cable prices fell 0.3 percent on a monthly basis and shed 2.8 percent on a yearly basis.
Anirban Basu is chief economist for Associated Builders and Contractors.