Prices for inputs used in nonresidential construction were down for the second month in a row. Most of the decrease in November can be traced to reductions in cement, gypsum, and energy (except for natural gas prices, which rose) and energy related materials prices. The price decline was partially offset by increases in steel, aluminum, and softwood lumber prices.
Prices of building materials primarily used in residential construction also declined in October and November, though slightly less. In addition to the price movements already mentioned for nonresidential construction materials, November residential construction materials prices were affected by a drop in oriented strand board (OSB) prices and a jump in HVAC equipment prices.
The outlook is for the economy and for construction to improve throughout 2014. Thus, look for building materials prices to rise modestly early this year and then begin to increase at a faster pace by late spring/early summer. Stronger than expected growth would result in greater building materials price inflation. Lower than expected growth would result in slower building materials price inflation.
There is still downside risk for the economy and construction depending on what cuts, if any, are negotiated over federal government spending and raising the debt ceiling. Failure to raise the debt ceiling is the biggest threat to the economy at this point. Also, an eye must be kept on the Federal Reserve’s unwinding of its asset purchase program and accumulation of long-term financial instruments under its program of Quantitative Easing (known as QE) and the impact on long-term interest rates. If interest rates rise too fast, economic growth could be stunted.
Construction Materials Inflation
The Bureau of Labor Statistics (BLS) reported that the November Producer Price Index (PPI) for materials and components used in construction was unchanged on a seasonally adjusted (SA) basis for the second month in a row. The index was 1.7% higher on a not seasonally adjusted (NSA) year-over-year basis and was 8.2% higher than in November 2010.
Prices for raw materials used in construction or to produce products used in construction declined 0.3% in November after advancing 0.4% in October. The index was up 2.6% from November 2012 and was up 7.4% from November 2010.
An index that measures inputs used in nonresidential construction (excluding capital equipment) decreased 0.6% (NSA) in November after falling 0.5% in October. The index was 0.7% higher than in November 2012 and was 8.5% higher than November 2010.
An index that measures inputs used in residential construction (excluding capital equipment) was down 0.3% (NSA) in November after sinking 0.4% in October. The index was 1.5% higher than in November 2012 and was 9.2% higher than in November 2010.
Nonresidential Construction Materials Prices Down Again in November