After eight months of decline, prices of construction materials increased 0.5 percent in May 2009, according to the June 16 producer price index report by the U.S. Labor Department. However, prices are still down by 5.3 percent on a year-over-year basis.
Construction materials trending higher include fabricated ferrous wire, up 0.5 percent, marking the first increase since October of last year. On a year-over-year basis, prices are up 0.1 percent. Prices for prepared asphalt and tar roofing are 1.3 percent higher from April, and up 40.4 percent from a year ago. Plumbing fixtures and fittings prices were unchanged on a monthly basis and are up 0.6 percent from May 2008.
In contrast, prices for fabricated structural metal products continue to decrease, down 0.7 percent from April and down 2.0 percent on a year-over-year basis. Softwood lumber prices dropped 2.1 percent from April and are down 18.4 percent on a year-over-year basis.
Crude energy prices increased 5.3 percent in May as crude petroleum prices spiked up 18.6 percent. Overall, finished goods prices were up 0.2 percent from April but are still down 4.7 percent from May 2008.
The monthly increase in construction materials prices was not entirely unexpected, but it is still cause for concern. The U.S. construction economy remains quite soft in many key segments, including both the office and commercial categories. For these construction segments to rebound, there must be a combination of positive factors including well-behaved interest rates, reasonably priced construction materials and spreading economic momentum and prosperity.
However, recent increases in commodity prices, including a hike in oil prices, represent an emerging challenge to the nation’s construction momentum because they compromise a necessary asset of the recovery to come.
From a broader prospective, any additional increase in construction materials prices would be most unwelcome given the nation’s ongoing efforts to address its infrastructure needs. Should construction materials prices continue to rise in the months ahead, the nation will end up purchasing less infrastructure for each dollar spent.
Anirban Basu is chief economist with Associated Builders and Contractors.