Construction materials prices up again in May


    For the seventh month in a row, the price of construction materials and supplies increased in May, rising 0.7 percent, according to the June 16 producer price index report by the U.S. Labor Department. Prices are 5.9 percent higher from May 2009.

    Leading the commodities, the prices of prepared asphalt, tar roofing and siding saw the largest monthly percentage change and are up 4.6 percent. Despite the increase, prices are 0.2 percent lower than the same time one year ago. Softwood lumber prices are up 3.9 percent from April to May and are 1.4 percent higher on a year-over-year basis. Steel mill product prices are up 3.5 percent on a monthly basis and are up 32.4 percent compared to a year ago. Iron and steel prices rose 0.9 percent in May and are 38.6 percent higher than May 2009. Fabricated ferrous wire prices rose 0.8 percent last month and are up 2.8 percent on a year-over-year basis. Concrete product prices are up 0.5 percent, but are 1.7 percent lower from May 2009. Fabricated structural metal prices went up by 0.5 percent in May and are 0.2 percent higher compared to the same month a year ago.

    In contrast, plumbing fixtures and fitting prices declined 0.2 percent last month, but are 5.7 percent higher from May 2009. Nonferrous wire product prices were also down 1.7 percent in May, though the prices are still up 17.1 percent over the past year. Crude energy prices fell 5.1 percent in May, though they are still 24.7 percent higher on an annual basis.

    Overall, the nation’s wholesale prices fell 0.3 percent in May. The primary source of the monthly decline was a 1.5 percent fall in energy prices, the biggest drop since February, and a 0.6 percent decline in the price of food.

    The very basic principles of economics would dictate that construction materials prices should not be rising. After all, the U.S. and much of the balance of the developed world, including Europe, remain mired in modest recoveries that may ultimately falter. Europe is almost certain to enter a period of double-dip recession, while at least one prominent economist has placed the chance of another recession in America at one-in-two.

    The struggling economy is causing both nonresidential and residential construction to continue to slump, with the exception of a handful of stimulus-impacted segments such as highway/street and conservation/development.

    Despite today’s data, prices for construction materials and supplies have been on the upswing. It is true that some of this is merely statistical, since roughly a year ago commodity prices achieved remarkably low levels as speculators lost billions and sold commodities to raise cash.

    Nonetheless, producer prices are presently demonstrating a momentum that is at least somewhat inconsistent with broader economic performance. There are a number of reasons for this, including more money being invested in commodities as global traders look to diminish their exposure to both equity and certain types of bonds.

    Anirban Basu is chief economist for the Associated Builders and Contractors.

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