Construction Input Prices Increase in May

In May, prices for inputs to construction industries saw their largest month-over-moth increase in more than two years, according to analysis by the Associated Builders and Contractors.

Prices expanded by 1.1 percent for the month, marking only the third time in the past 10 months that construction input prices have grown on a monthly basis. Year-over-year prices fell by 3 percent in May and have fallen by more than 3 percent in each of the year’s first five months.

“Commodity markets experienced a reversal of several patterns that have been in place for many months in May,” says ABC chief economist Anirban Basu. “Most notably, key energy prices rose meaningfully, with oil prices rising to roughly $50 per barrel. While natural gas prices did not rise for the month according to the producer price index, they remained relatively flat after falling by more than 10 percent in three of the year’s first four months. Many economic forces were at work, including a weaker U.S. dollar. Many commodities are priced in dollars, which helps to lay a floor under the associated prices. With the European economy showing signs of life the dollar’s rise against the euro has effectively stalled.

“Stakeholders should not consider this the beginning of a new trend,” says Basu. “There are a number of reasons to expect the U.S. dollar to advance against other major currencies during the next few months, including an anticipated shift in monetary policy. Last year, the U.S. Federal Reserve ended its quantitative easing program, and interest rate increases are likely during the month ahead. This will help suppress further increases in commodity prices, including those related to energy. Key elements of the global economy also continue to stumble, including in China, with its worst world outlook in approximately 20 years, and in Brazil, which is not expected to expand economically in 2015.”

Eight of the 11 key construction inputs did not expand for the month, including prices for fabricated structural metal product, which dropped 0.5 percent for the month but have expanded 0.8 percent on a year-over-year basis.

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