Washington D.C.—Construction materials prices dropped 2.5 percent in December 2008 from the previous month, according to the Jan. 15, 2009, producer price index (PPI) report by the U.S. Labor Department. This represents the third straight month where construction materials prices have fallen, bringing the fourth quarter price declines to 8.3 percent. However, despite the drop, construction input prices are 2.7 percent higher than the same time last year.

Prices for fabricated structural metal products dropped another 0.9 percent for the month, still up 12.6 percent from levels in December 2007. Softwood lumber prices decreased for the fourth straight month, down 0.6 percent from November and 8.4 percent from the same time last year. Crude energy prices decreased 6.1 percent in December, representing the fifth straight monthly decline. Overall, U.S. wholesale prices dropped 1.9 percent on the month and 7.3 percent in the fourth quarter.

What this means
"This PPI report represents a mixture of good and bad news," said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. "The good news is that key construction materials prices are now in sustained decline and this increases the appetite for construction services, all things being equal.

"The bad news is that all things are not equal. These price drops are a function of declining worldwide demand for construction, even in the face of falling construction materials prices," added Basu.

"Given trends in the broader economy, this ongoing lack of demand for new construction will persist for many months to come and probably well into 2010, if not beyond," stated Basu. "One variable is the upcoming stimulus package being discussed in Washington, and it will be interesting to see if the implementation of this tool to help revive the economy will serve to stabilize construction materials prices."