Price Pressures Subside - For Now

Construction materials costs have retreated after a yearlong advance. The producer price index (PPI) for inputs to construction-a weighted average of the prices of materials used in all types of construction, plus items consumed by contractors, such as diesel fuel-tumbled 0.9 percent, seasonally adjusted, in June. That was the largest one-month drop since February 2009 and followed a run of 10 price increases in the previous 14 months. It appears likely that prices will continue to moderate for the next few months. In the weeks since the data for the PPI was collected in mid-June, diesel and steel prices have fallen further. Weak demand for housing and nonresidential building suggests that lumber prices will continue to retreat and wallboard prices will reverse their recent increases. Unfortunately, the decreases may not be enough to make contractors whole. The PPI for finished buildings has remained negative, meaning that contractors are offering to build new warehouse, school, industrial and office buildings for less than a year ago. Moreover, material costs are likely to start rising again by early next year. While the U.S. economy has slowed, it is still growing, as are most other countries. Ongoing growth means upward pressure on materials, such as copper, for which supply expands irregularly. Therefore, owners who hope for further price declines before committing to projects are likely to miss out on bargains that will last only for the next few months.