Construction Materials Prices Up in December 2009

"The major variable to watch over the next year may very well be the U.S. dollar. Any significant move of the dollar in one direction or the other is likely to have significant impact on materials prices." —ABC Chief Economist Anirban Basu

The cost of construction materials and supplies ended 2009 slightly higher as prices increased 0.2 percent in December, according to the January 20 producer price index (PPI) report by the U.S. Labor Department. Construction material prices are up 0.6 percent in the past three months and 0.4 percent higher from December 2008. (See analysis below)

Those commodities regularly tracked by ABC that have seen the greatest change for the month include prepared asphalt, tar roofing, and siding products, up 5.9 percent in December, 4.7 percent higher for the quarter, but still 3.4 percent less than December 2008. Also, nonferrous wire and cable prices climbed 3.9 percent for the month, 6.8 percent over the past three months, and are 20.2 percent more expensive than one year ago. Softwood lumber prices increased 3.8 percent on the month, 4.1 percent since September and 3.5 percent from the same time last year.

In addition, iron and steel prices are up 1.4 percent for the month, but down 0.4 percent over the past three months and down 0.9 percent from December 2008 levels. Fabricated structural metal products increased slightly at 0.1 percent in December, and are up 0.1 percent over the past three months, while prices are still 7.9 percent less than one year ago. Prices for plumbing fixtures and fittings continue to see little change as prices increased 0.1 percent for the month, 0.3 percent for the quarter and 0.6 percent since December 2008.

Crude energy prices decreased 2.8 percent in December, but are still up 18.1 percent over the past three months and 13.2 percent year-over-year. Overall, the nation’s wholesale prices are up slightly at 0.2 percent for the month and 4.4 percent higher from December 2008.

Analysis

“The slight increase of construction materials prices does not appear to be particularly newsworthy. However, the figure masks a growing volatility in the construction market,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “This volatility is attributable to numerous factors, including growing speculation regarding the health of the U.S. dollar, the growing Chinese economy, the sagging U.S. economy, and other major factors that influence material prices.

“While not all materials prices rose, many of the most important components for ABC members changed substantially in the span of just one month. This instability makes bidding for jobs more difficult and may be a precursor of what lies ahead in 2010,” said Basu.

“The major variable to watch over the next year may very well be the U.S. dollar. Any significant move of the dollar in one direction or the other is likely to have significant impact on materials prices,” said Basu. “With the structure of the U.S. economy, given the presence of low interest rates, the presumption is any significant move in the dollar will be to the downside. That would likely result in a potential sharp increase in materials prices.”