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Key Input Prices Declined In July
Year-To-Year Figures Are Even Better

What's happening of late is "unprecedented," the chief economist of the Associated Builders and Contractors said of the producer price index report for the month of July. Prices of key "inputs" to the construction industry either fell or were flat for the month, while year-to-year construction spending data shows the residential, nonresidential and multi-family segments have been booming.

Building companies saw a slight reduction in July prices for most key products used in the construction industry. But it's in the year-to-year numbers where they are receiving the most benefit.

The producer price index for the month, released by the Bureau of Labor Statistics on Aug. 14, shows a 0.1 percent drop in cumulative prices for "inputs" to the building industry. This compares to a 0.2 increase in June.

On an annual basis, input prices have decreased 3 percent in July, and there have been cuts have resulted in each of the past eight months.

Prices of various commodities used by nonresidential construction industries declined 0.3 percent on a monthly basis, and have dropped 3.9 percent year-to-year.

This is happening even though single-family, multi-family and nonresidential building activity has been rising in the past year, the most recent construction spending report from the U.S. Census Bureau reveals.

Total residential construction -- including both the private and public sectors -- was up 13 percent in the month of June, compared to the same month in 2014. (The Census Bureau is scheduled to release July construction spending data on Sept. 1.) Total spending in the nonresidential segment was up 11.5 percent.

Key input prices should be rising, but they either fell or were relatively flat in all but one category in July. "The state of affairs today is unprecedented," said Anirban Basu, chief economist for the Associated Builders and Contractors.

"It is important to note that further downward pressure on input costs is likely to be reflected in next month's (producer price index) report as well," he said.

America's heightened building activity is happening amid "collapsing commodity prices," Basu noted. "The latest round of commodity price decreases has been spawned by softening growth in China, and ongoing increases in production of key inputs worldwide, including oil," he said.

"However, this form of deflation should not be troubling to contractors. If anything, it will tend to boost profit margins for the average contractor, though falling commodity prices do not represent good news for construction firms heavily invested in the oil and natural gas segments," Basu added.

Construction input prices for the month and the year:
Softwood lumber was up 6.2 percent in July, but is 3.7 percent lower than a year ago.
Plumbing fixtures were flat for the month, and are up 1.2 percent year-to-year.
Concrete products fell 0.1 percent in July, but are up 3.8 percent on an annual basis.
Crude energy materials dropped 6.2 percent for the month, and are down 37.8 percent for the year.
Fabricated structural metal products fell 0.7 percent in July, and show a 0.4 percent drop from a year ago.
Natural gas declined 1.9 percent in July, and is 38.4 percent lower than July 2014.
Iron and steel prices were down 1.1 percent for the month, and have dropped 15 percent year-to-year.
Asphalt, tar roofing and siding fell 0.1 percent in July, and have been cut 0.4 percent from a year ago.
Steel mill products dropped 1 percent for the month, and are 13.2 percent lower on an annual basis.
Crude petroleum fell 12.3 percent in July, and is 48.8 percent lower than the same month in 2014.
Nonferrous wire and cable are down 1.3 percent for the month, and have declined 5.2 percent in the past year.

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October 17, 2019, 9:03 am PDT

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