Although prices for construction materials and supplies were 4.5 percent higher in July 2010 than July 2009, prices inched 0.2 percent lower on a monthly basis, according to the Aug. 17 producer price index report by the U.S. Labor Department.
Softwood lumber prices continued to decline, falling 3.3 percent for the month, although they are still up 10.1 percent from July 2009. Iron and steel prices were down 2.3 percent in July, but still 26 percent higher year over year. Similarly, steel mill product prices were down 1.4 percent in July, but remain 26.1 percent higher compared to July 2009. Nonferrous wire and cable prices slipped 0.8 percent for the month, but are up 11.4 percent year over year, while concrete product prices fell 0.1 percent in July, leaving them 1.9 percent lower than the same time last year.
Prepared asphalt, tar roofing and siding prices jumped 3.8 percent for the month and are 4.3 percent higher on a year-over-year basis. Fabricated ferrous wire prices increased 0.9 percent in July and 2.4 percent during the past 12 months. Plumbing fixtures and fittings prices inched up 0.2 percent for the month and are 0.9 percent higher compared to last year. Prices for fabricated structural metal products also increased 0.1 percent in July and are up 2.4 percent year over year.
Crude energy prices climbed 4.5 percent and natural gas prices jumped 11.7 percent for the month. After experiencing decreases during the previous two months, prices for wholesale finished goods increased 0.2 percent in July.
Economists and others have been wrestling with the issue of deflation in recent months as economic momentum has continued to slow. While economy-wide deflation remains unlikely in the minds of many, elements of the U.S. economy will experience a lack of pricing power, which will translate into falling prices. That may explain what is occurring now with construction materials prices, which experienced their second consecutive monthly decline. Not surprisingly, items associated with residential construction have been impacted the most due to expiring tax credits. For instance, softwood lumber prices fell sharply in July.
While it is true that certain producer prices rose for the month, those increases may be temporary. For example, crude energy prices rose in July, but oil prices have been in decline for much of August.
The expectation going forward is that construction materials prices will continue to be well behaved and may begin to decline more substantially as we approach the latter months of 2010.
Anirban Basu is chief economist for Associated Builders and Contractors.