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.