The price of construction inputs jumped 2.6 percent in May 2008 compared to April 2008 and the aggregate price of construction inputs rose 8.4 percent over the past year, according to a producer price index (PPI) report released June 17 by the Bureau of Labor Statistics.
According to ABC Chief Economist, Anirban Basu, construction inputs that saw a notable increase in price include softwood lumber which rose 7.1 percent in May 2008 compared to April 2008; asphalt felts/coatings which increased by 5.6 percent in May 2008; and nonferrous wire and cable which increased 2.2 percent in May 2008 after declining 3.1 percent in April 2008. Fabricated structural metal products also rose 2.9 percent in May 2008 compared to April 2008.
Prices for plumbing fixtures and brass fittings inched up only 0.2 percent between April 2008 and May 2008 and prices for fabricated ferrous wire products continued their decelerated growth, increasing less than one percent in May 2008.
In addition, Basu pointed out that the index for crude energy materials advanced a staggering 13.1 percent in May 2008 and rose 67 percent over the past year while natural gas prices jumped 17 percent in May 2008. Intermediate energy goods rose 29.4 percent and finished energy goods rose 19.7 percent.
“Many analysts have chosen to put a positive spin on today’s PPI release noting that core producer price components remain well behaved and that much of the increase in prices was associated with volatile non-core elements, such as energy and food,” said Basu. “For nonresidential contractors, this only offers small comfort since industry players are so heavily susceptible to increases in the price of non-core components, especially energy. Due to economic factors such as global supply and demand combined with global investor’s ongoing preoccupation with commodities, nonresidential contractors will likely experience sharp increases in construction input prices, including energy prices, through the balance of the summer.
“The recent increases in construction input prices will likely dampen commercial construction starts even more than what would have been the case in the face of a soft economy,” Basu continued. “However, nonresidential contractors will likely see some relief in the form of greater labor availability and moderation in labor cost increases.”