Associated Builders and Contractors Inc.

Rising Oil and Commodity Prices Raise Construction Materials Prices

The nation’s construction materials prices increased for the first time in four months, rising 0.9 percent in August, according to the September 13 Producer Price Index report by the U.S. Labor Department. Year over year, construction materials prices are up 1 percent. Nonresidential construction materials prices were 1 percent higher for the month and are up 0.7 percent from August 2011.

Most construction materials categories experienced price increases.

  • Softwood lumber prices jumped 3.4 percent in August and are 7.8 percent higher than one year ago
  • Nonferrous wire and cable products increased 0.5 percent for the month but have declined 6.4 percent during the last 12 months
  • Concrete product prices rose 0.5 percent in August and are 2.1 percent higher compared to the same time last year
  • Iron and steel prices increased 0.3 percent for the month but are down 9.2 percent year over year
  • Plumbing fixtures and fittings inched up 0.1 percent in August and are 1.2 percent higher than one year ago

Some materials saw price declines.

  • Steel mill prices dropped 2.5 percent for the month and are 8.2 percent lower than in August 2011
  • Prepared asphalt, tar roofing and siding fell 1.8 percent in August and are 5 percent lower than the same time last year
  • Fabricated structural metal products slipped 0.2 percent last month and remain unchanged from 12 months ago

Crude energy materials prices jumped 9.7 percent in August, driven primarily by a 12.8 percent increase in crude petroleum prices. Year over year, crude energy materials prices are down 5.6 percent. Overall, the nation’s wholesale goods prices rose 1.7 percent in August - the largest monthly increase since June 2009. During the past year, wholesale goods prices rose 2 percent.

“Today’s report should generally be viewed negatively,” said Associated Builders and Contractors Chief Economist Anirban Basu. “All things being equal, one would expect prices to remain well behaved at a time of slow economic growth, both domestically and abroad.

“However, producer prices rose nearly 2 percent last month, with construction materials prices up nearly 1 percent,” Basu said. “This increase in prices makes generating economic output more expensive, which in turn slow economic growth.

“From a construction viewpoint, rising materials prices render construction service delivery more expensive, which carries over to higher project cost estimates, less projected revenue and less likely that an individual project will acquire adequate financing," said Basu. “On the other hand, from a multi-month perspective, materials prices are only up 1 percent during the past year, a welcome respite from previous years when materials prices had been incredibly volatile.

“August may prove to be a bit of an aberration for a number of reasons, including the unusually large increase in crude energy prices,” Basu said. “Conventional wisdom suggests that oil and other commodity prices have been rising for reasons that have little to do with underlying economic performance and more to do with geopolitics, meteorological forces and shifting global investment allocations.

“Given the recent uptick in unsettling geopolitical activity, oil prices could become even more volatile, which tends to drive materials prices higher overall,” said Basu. “However, the pace of economic growth around the world, and the level of demand for construction materials, suggests construction materials prices are likely to remain reasonably stable for the foreseeable future absent a major geopolitical event.”

View the August 2012 Producer Price Report.

Fall 2012 Building Products & Materials Industry Trends

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