Construction Prices Up for Month but Remain Historically Low

Input prices for construction materials expanded on a monthly basis in April for the second consecutive time, though they have decreased on a year-over-year basis for 17 consecutive months.

According to Associated Builders and Contractors’ (ABC) analysis of Bureau of Labor Statistics (BLS) Producer Price Index data, prices increased by 0.5 percent for the month and remain 2.9 percent below their April 2015 levels.

Nonresidential construction inputs behaved similarly, expanding 0.5 percent month-over-month but falling 3.1 percent year-over-year.

“Despite the end of month-to-month materials price decreases, prices remain low by historic standards and will likely continue to do so for the foreseeable future,” says ABC chief economist Anirban Basu. “Commodity prices, including oil prices, have been edging higher lately in response to a number of potentially temporary phenomena, including a weakening U.S. dollar. Coming into the year, the presumption among many market participants was that U.S. interest rates would rise meaningfully, thereby increasing the value of the dollar. Contrary to expectations, interest rates have not risen significantly, and the dollar has been weakening in response.”

He add that this has helped set the stage for a recent bounce-back in oil and certain other commodity prices.

“Other factors have not been as supportive, including a still-weak global economy,” he says. “Global economic weakness is likely to persist, and the dollar may begin to strengthen again. This means that construction firm managers should not assume that oil and other prices will rise steadily. In fact, reversals in commodity prices remain quite possible. While oil prices have risen sharply since lows achieved earlier this year, copper, natural gas and other prices have expanded only modestly. The next materials price report could easily show further inflation. The story of inexpensive materials will continue to be told.”

Eight key input prices rose in April on a monthly basis, including fabricated structural metal. Those products rose 0.2 percent in price month-over-month but decreased 2 percent year-over-year.