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Declining Domestic Materials Demand Drops October Construction Materials Price Index

0 1078 Market Intelligence

The construction materials price index fell 0.2% in October but remains 0.5% higher than three months ago. The price trend ahead is for modest increases into the winter and then larger monthly increases for the rest of 2010. Monthly price changes into the winter will more likely be up than down but the net price rise will be small until domestic demand for construction materials is again rising steadily, says Reed Construction Data chief economist Jim Haughey.

The construction materials price index fell 0.2% in October but remains 0.5% higher than three months ago. The price trend ahead is for modest increases into the winter and then larger monthly increases for the rest of 2010. Monthly price changes into the winter will more likely be up than down but the net price rise will be small until domestic demand for construction materials is again rising steadily. The key negative drivers of materials price changes now are the depressed and still falling level of US construction and a small lingering surplus of construction materials inventory. Several, international factors are contributing offsetting upward pressure on prices. The $US continues to decline and foreign construction and manufacturing demand for construction commodities is now rising again.

The October drop illustrates these conflicting price trends. The largest monthly increases were diesel fuel (+5.1%), asphalt roofing (+3.2%) and structural steel (+1.1%).  These prices are largely set in international markets. The largest monthly price declines were for materials where prices are set tin the depressed domestic market. This included pre-stressed concrete (-3.8%), gypsum products (-1.9%), softwood lumber (-1.7%) and ready-mix concrete (-0.6%).

The price report also includes some evidence that falling contractor margins and cuts in labor costs not captured in the official wage statistics are causing an abrupt drop in total construction costs. Bids for stimulus funded projects also suggest the same trend. Experimental indexes for the total cost of a “standard” building fell again for warehouses and office but rose but schools. Discounted margins and labor rates will continue well into next year in the depressed market no matter how international factors change materials costs.

US Construction-Related Price Indexes – October 2009

  Percent Change versus...
  3 years
ago
year
ago
3 months
ago
previous
month
Construction Commodities  
Dimension Stone 10.0 4.7 1.3 0.1
Cement 2.0 -1.7 -1.2 -0.1
Asphalt Paving Mixtures and Blocks 4.9 -36.7 -3.8 2.9
Construction Sand, Gravel & Crushed Stone 19.1 2.9 -0.1 0.3
Softwood Plywood 2.9 -9.0 2.2 -3.2
Hardwood Lumber -11.6 -5.5 2.2 0.4
Softwood Lumber -14.6 -5.0 -1.9 -1.7
Other Commodities  
Industrial Natural Gas -5.5 -25.9 -1.3 4.0
Plastic Resins & Materials -3.0 -14.2 -0.8 -1.7
Insulation Materials -5.0 -1.4 -0.6 -0.1
Iron & Steel Scrap 24.9 7.1 15.9 -4.5
Iron Ore 3.4 -3.3 0.0 0.0
Copper Ores -9.4 -10.7 24.3 -0.5
Copper Base Scrap 4.1 27.8 19.0 0.1
Manufactured Materials  
Gypsum Products -26.8 -7.2 -3.8 -1.9
Diesel Fuel 2.9 -28.0 16.8 5.1
Asphalt Roofing 54.9 0.1 -1.6 3.2
Paint 21.3 5.0 -0.6 -0.1
Plastic Construction Products 2.5 -1.9 1.4 0.3
Vitreous Plumbing Fixtures -2.0 2.4 0.0 0.0
Ceramic Tile 3.4 -3.6 -0.6 0.1
Flat Glass -1.2 -4.8 -1.8 -0.6
Fabricated Building Steel 1.4 -13.2 -1.4 -0.2
Hot rolled bars, plates & structural shapes -2.9 -26.2 6.2 1.1
Extruded Aluminum rod, bar and other shapes -14.0 -15.0 1.5 -0.3
Architectural Metalwork 17.9 -9.5 -0.9 -0.8
Metal Plumbing Fixtures 8.4 -0.1 -0.1 0.2
Builders/' Hardware 13.1 -3.6 1.9 1.0
Sheet Metal Products 3.2 -6.3 0.3 0.7
Steel Pipe and Tube 1.8 -24.4 5.8 1.7
Nonferrous Pipe and Tube -9.8 1.9 8.3 -9.5
Building Brick -0.6 -0.5 0.1 0.1
Ready Mix Concrete 6.8 0.5 -1.5 -0.6
Concrete Block & Brick 7.5 0.0 -0.2 0.0
Prestressed Concrete -7.9 -13.7 -1.5 -3.8
Precast Concrete Products 11.0 0.7 -0.2 0.2
Concrete Pipe 12.1 -2.6 -1.1 0.5
Wood Kitchen Cabinets 6.4 2.0 0.3 0.3
Millwork (window,door, cabinet) 4.5 0.9 0.1 0.0
Engineered Wood Products -9.9 -5.1 0.7 -0.2
Laminated Plastics 3.8 -1.0 -0.7 -2.2
Assembled Equipment  
Hand and Edge tools 10.2 1.0 -0.2 0.0
Power Hand Tools 3.4 -0.6 1.7 -0.1
Appliances 6.0 1.7 -0.5 0.1
Furnaces 9.0 0.6 -0.6 -0.5
Construction Machinery 7.4 0.9 -1.3 -0.3
Construction Machinery Rental
   (incl. oilfield equip.)
0.8 -0.1 -1.3 0.3
Trucks over 14,000 Ibs. GVW 13.5 5.6 0.9 0.5
Metal Doors, Sash and Trim 6.0 -0.9 0.2 0.3
Summary  
Construction Materials (commodity level) 4.2 -6.6 1.9 0.4
Inputs to Construction Industries 7.3 -5.9 0.5 -0.2
Inputs to NR Construction 10.7 -5.7 2.5 -0.4
Inputs to SF Construction 6.0 -3.9 0.2 -0.3
Inputs to MF Construction 5.6 -4.7 0.2 -0.4
Inputs to Highway & Street Const. 13.1 -8.8 0.6 -0.1
Inputs to Other Heavy Construction
   (indexes incl. installation and overhead)
7.2 -9.1 0.7 -0.1
New Warehouse Building Construction 13.8 -4.6 -2.4 -1.1
New School Construction 12.0 1.4 -0.6 0.7
New Office Construction   -3.2 -2.0 -0.2
Production Index: Construction Supplies -23.9 -17.0 -1.6 -1.2
Retail Sales: Building & Equipment Supplies  -19.2 -15.0 -4.7 -2.4

Source: Producer Price Index, Bureau of Labor Statistics,
US Department of Labor, Federal Reserve Board, Census Bureau

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by Jim Haughey

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