The construction materials price index fell 0.6% in March extending the decline since the September peak to 9.6%. The spike in prices earlier in 2008 has now been more than reversed. The index stands at 2.1% lower than a year ago. The price index is expected to decline slowly for a few more months but be rising modestly again by the end of the year and rising more quickly next year, perhaps up 4-5% from the 2009 average.

March’s price drop was lead by structural steel (-6.4%) and diesel fuel (-8.9). Other significant declines included lumber (-3.5%) and aluminum (-2.3). Diesel fuel prices increased $0.21/gal.since the March price survey. The only significant March price increases were for asphalt (at the refinery) (6.0%) and asphalt roofing (5.2%). Different inventory situations permitted the price for diesel to fall temporarily while asphalt prices were rising. Shovel ready paving projects funded by the economic stimulus plan will kept asphalt prices rising through the summer.

Copper ore and scrap prices rose sharply which will boost nonferrous product prices in the next few months. Credit this to mining and ore processing shutdowns outside the US. Conversely, steel scrap prices dropped 8.3% in March, promising further cuts in structural steel, sheet metal and metal products, such as builders’ hardware.

Construction labor costs gains are also weak. Construction wage gains have slowed from a 5% annual pace last years to 1-2% range early in 2009. Some wage cutbacks have recently occurred and will be more frequent later this year. Contractors’ margins are difficult to document but there is increasing evidence that they have shrunk and will continue to shrink this year. There has been a marked increase in the number of bidders which is typically a sign contractors are scrambling to get their next job. Recent reports of bids on public projects being as much as 15-20% under the estimate is also evidence of falling margins.

Price trends vary widely by region depending on the level and mix of construction work in each market. Price level and trend information for more than 300 markets is available from R S Means at www.reedconstructiondata.com/construction-costs/us/

Construction Materials Inflation – March 2009

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