The cost of construction materials continued to rise in 2010, closing up 0.9 percent in December, according to the Jan. 13 producer price index report by the U.S. Labor Department. Overall, producer prices last month were 5.4 percent above December 2009 levels.
Leading the increase, softwood lumber prices jumped 3.4 percent and are up 6.3 percent over the previous 12 months. Iron and steel prices rose 2.3 percent and were 16.9 percent higher than in December 2009. Nonferrous wire and cable prices increased by 2.2 percent from last month, 11.1 percent over the last three months, and 12.2 percent over the last 12 months. Prices for fabricated structural metal products rose 0.9 percent and are up 3 percent from December 2009. Steel mill product prices increased by 0.5 percent and are up 12.5 percent compared to one year ago. Prices for plumbing fixtures and fitting inched up 0.3 percent and are 1.3 percent higher from December 2009. Prices for concrete products are also up 0.3 percent for the month but are down 0.3 percent on a year-over-year basis.
Prices for prepared asphalt, tar roofing and siding fell 1.0 percent in December but were up slightly, 0.9 percent, over the last 12 months.
Crude petroleum prices rose 7.7 percent in December, as natural gas prices soared 23.4 percent. Year-over-year, crude energy prices are up 6.2 percent.
Wholesale prices increased for the sixth straight month, up 1.1 percent in December, and up 4.1 percent from December 2009. Producer prices in 2010, on average, were 4.3 percent higher than in 2009.
Over the past three months, the monthly increases have been 0.6 percent, 0.5 percent and 0.9 percent. These increases appear to be in conjunction with broader increases in import prices.
Increases are occurring despite the fact that construction levels remain suppressed in both residential and nonresidential categories.
Likely explanations include a shift of investors’ money from bond funds into the commodities market, and the rapid expansion of a number of large emerging countries where construction is vibrant.
For contractors in the U.S., this cannot be viewed positively. Rising materials prices put even more downward pressure on already slender profit margins. Moreover, the increase in project costs associated with rising materials prices makes it more likely that certain projects will remain on hold. However, given recent stability in the U.S. dollar, it may be that materials prices will not increase as forcefully as in the past months.
Anirban Basu is chief economist for the Associated Builders and Contractors.