OCTOBER 20 PRODUCER PRICES  (10/20/2009)
October 20, 2009

Construction Materials Prices Fall in September

Summary

Despite a modest gain in August, prices for construction material and supplies decreased 0.4 percent in September, according to the October 20 producer price index (PPI) report by the U.S. Labor Department. Since September 2008, construction material prices are down 8.2 percent (see graph below).

Construction materials prices trending lower were led by softwood lumber, down 2.4 percent in September and off 10.8 percent from the same time last year. Plumbing fixtures and fittings prices are down 0.2 percent on both a monthly and annual basis. Fabricated structural metal product prices dropped 0.4 percent for the month and are down 9.4 percent from September 2008.

On the other hand, prices for nonferrous wire and cable inched up 0.5 percent, representing the second straight monthly increase. However, on a year-over-year basis, prices are still down 7.8 percent. Meanwhile, prices for prepared asphalt, tar roofing, and siding products increased 0.3 percent for the month and are up 0.9 percent from September 2008.

Crude energy prices fell 5.4 percent in September, which is attributable largely to a 13.8 percent drop in natural gas prices for the month. Overall, the nation’s wholesale prices fell 0.6 percent for the month and are 4.8 percent lower than September 2008 levels.

What This Means

“After rising for the previous month, the trend of falling producer prices was reestablished in September,” said Associated Builders and Contractors Chief Economist Anirban Basu. “There appears to be a competition of forces impacting producer prices, and the net result has led to reasonably small shifts in prices on a month over month basis.

“The falling U.S. dollar, coupled with federal stimulus spending, is helping to support prices. However, the generally weak economy and ongoing declines in the volume of nonresidential construction are consistent with falling prices,” said Basu.

“Though many markets continue to be battered by a lack of construction volume, contractors are benefiting from a period of relatively stable input prices, which allows for simpler pricing and bid submissions,” said Basu. “Nonetheless, the future path of producer prices remains very unclear.

“Were the dollar’s decline to accelerate, producer prices would edge higher. Still, as various stimulus packages across the world wind down, it is quite possible that producer price declines will become more pronounced over the next six to eighteen months,” said Basu.