The construction materials price index fell 2.8% in October matching the decline in the overall Producer Price Index. October prices were still 10.0% above a year earlier but further, although smaller, declines in the index are expected in November and possibly December. Energy and metal prices fell further from mid-October to mid-November when the survey for the next PPI report was taken.

The most significant declines last month were 18% for asphalt (at the refinery), 18% for diesel fuel (at the pump), 8% for structural steel and nonferrous pipe and tube, 7% for lumber and 6% for plywood. The drop in raw commodity prices has yet to flow through fully to processed and manufactured construction materials. Steel scrap fell 38% and copper scrap dropped 29% in October. The decline in metals, energy and freight costs in the pipeline will push down the prices of manufactured products in the next few months.

The only significant prices increases in October were asphalt roofing (+7.3%) and gypsum products (+2.2%). Roofing prices do yet reflect the sharp drop in asphalt last month. Gypsum producers had announced a series on 11% monthly price increases but have been able to raise prices only about 6% in the last few months.

Heavy contractors benefit the most from the recent price cuts. The index for the mix of materials used in highway projects declined 5.8% in October to 15.2% above a year ago. The year will finish with several more large declines. Strained DOT and public works budgets will now be able to award more work than appeared likely a few months ago.

Construction Materials Inflation – October 2008

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