The construction materials price index fell 3.2% in November. This was a larger decline than the 2.2% reported for the whole economy. November prices were still 5.0% above a year earlier but further, although smaller, declines in the index are expected in December and possibly January. Energy and metal prices fell further from mid-November to mid-December when the survey for the next PPI report was taken.

The most significant declines last month were 20% for diesel fuel (at the pump), 15% for asphalt (at the refinery),11% for structural steel, 9% for nonferrous pipe and tube, and 4% for plywood. The drop in raw commodity prices has yet to flow through fully to processed and manufactured construction materials. Steel scrap fell 42% and copper scrap dropped 35% in November. The decline in metals, energy and freight costs in the pipeline will push down the prices of manufactured products in the next few months.

There were no significant prices increases in November.

The drop in materials prices in the last two months was large enough to offset slowly rising labor cost and cause a rare decline in total project costs.

Heavy contractors benefit the most from the recent price cuts. The index for the mix of materials used in highway projects declined 6.6% in November and 12.5% in the last three months. Strained DOT and public works budgets will now be able to award more work than appeared likely a few months ago.

Construction Materials Inflation – November 2008

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