Associated Builders and Contractors Inc.

Construction Materials Prices See Sharpest Increase in 22 Months

The nation’s construction material prices rose 1.3 percent in February - marking the sharpest increase in 22 months, according to the March 14 Producer Price Index (PPI) report by the U.S. Department of Labor. Overall, construction materials prices remain 2 percent higher than one year ago. Nonresidential construction materials prices rose 1.4 percent last month and are up 1 percent on a year-over-year basis.

New Housing, Nonresidential Renovations Drive Increase in Construction Materials Prices

Softwood lumber prices increased 2 percent last month and are up 27 percent compared to February 2012. Prices of concrete products rose 0.4 percent in February and are up 2.3 percent from one year ago. Plumbing fixtures and fitting prices were up 0.3 percent last month and are 1.7 percent higher than the same time last year. Prepared asphalt, tar roofing and siding product prices fell 1.5 percent, though prices remained 7.2 percent higher than a year ago.

Construction Materials Prices Increase as Sequestration Looms

In contrast, a number of materials prices recorded declines. Fabricated structural metal fell by 0.1 percent on a monthly basis and is flat relative to a year ago. Non-ferrous wire and cable product prices declined 1 percent for the month and are down 3.7 percent from February 2012. Steel mill prices dropped 0.9 percent last month and have declined 9.7 percent on a year-over-year basis. Prices of iron and steel products fell 1.8 percent on a monthly basis and are down 10.8 percent compared to one year ago.

Crude energy materials prices rose 2.2 percent in February on a seasonally adjusted basis, which is largely attributable to a 6.3 percent increase in petroleum prices.

Overall, the nation’s wholesale or finished goods prices increased 0.7 percent in February on a seasonally adjusted basis and are up 1.8 percent from February 2012.

“Increased volatility in monthly construction materials prices continues,” said Associated Builders and Contractors Chief Economist Anirban Basu. “In January, construction materials prices rose 0.7 percent, with nonresidential materials prices rising 0.6 percent. The rise in materials prices in February was even sharper after nearly a year of relatively stability.

“A number of different factors are at work,” stated Basu. “Key asset prices are generally on the rise globally; this is particularly apparent given the behavior of U.S. equity markets. Other prices are also on the rise, due in part to accelerating global economic growth and accommodative monetary policy.

“There is also evidence that nonresidential construction spending is positioned to accelerate, particularly in private construction categories,” said Basu. “Leading nonresidential construction indicators generally have turned positive and the associated increase in demand for materials appears to be driving prices higher.

“However, increased volatility is not synonymous with rising prices,” Basu said. “Production of inputs typically rises as prices rise. This suggests that there may be months later this year during which materials prices fall. But for now, price momentum is clearly to the upside.”

View the January Producer Prices report.

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