Prices for inputs to construction industries expanded 0.8 percent in March, the largest monthly increase in more than two years, according to the April 14 producer price index release by the Bureau of Labor Statistics.
Prices have now expanded for two consecutive months after declining during the prior six; however, input prices are down 3.6 percent on a year-over-year basis.
March marks the fourth consecutive month year-over-year input prices have declined, the longest such streak since 2009. Crude petroleum prices fell 4 percent in March and also have fallen in eight of the previous nine months.
Although overall construction materials prices rose for the month, prices for more categories of materials decreased than increased, including sharp monthly declines in the price for softwood lumber and iron/steel.
On a year-over-year basis, deflationary pressures are even more apparent as crude petroleum prices are down 55 percent and natural gas is down 45 percent, despite an increase in gas prices in March.
Though U.S. nonresidential and residential segments continue to expand, global construction volumes remain suppressed by widespread weakness in Asia, Europe and Latin America. With the U.S. dollar likely to get stronger over the next few months as domestic interest rates begin to rise, there is little likelihood of significant increases in construction input prices over the next six to nine months.
Overall, producer prices managed to increase 0.5 percent on a monthly basis, the first increase since June 2014. This reading serves to increase the likelihood that the Federal Reserve will begin to increase short-term interest rates later this year.
Only two of the key materials prices increased in March:
- Fabricated structural metal product prices inched 0.4 percent higher for the month and have expanded 1.3 percent on a year-over-year basis.
- Natural gas prices expanded 1.5 percent in March, but are down 45.3 percent from the same time one year ago.
Nine of the 11 key construction inputs did not expand for the month:
- Prices for plumbing fixtures fell 0.3 percent in March but are up 2.5 percent on a year-over-year basis.
- Prices for prepared asphalt, tar roofing and siding fell 0.4 percent for the month and are down 0.2 percent on a year-ago basis.
- Iron and steel prices fell 2.5 percent in March and are down 11.5 percent from the same time last year.
- Steel mill products prices fell 1.9 percent for the month and are 4.8 percent lower than one year ago.
- Softwood lumber prices fell 4.1 percent and are 7.4 percent lower than one year ago.
- Nonferrous wire and cable prices remained flat on a monthly basis and grew 2.5 percent on a yearly basis.
- Crude petroleum prices fell 4 percent in March and are down 55 percent from the same time last year.
- Crude energy materials prices fell 1.4 percent in March and are 43.7 percent lower year over year.
- Concrete products prices remained flat in March and are up 4.1 percent on a yearly basis.
Anirban Basu is chief economist of Associated Builders and Contractors.