Construction input prices fell by 0.6 percent in January, according to the Associated Builders and Contractors’ (ABC) analysis of U.S. Labor Department Producer Price Index data.
Prices are down 2.7 percent from January 2015 and have decreased on a year-over-year basis for 14 consecutive months.
Prices for inputs to nonresidential construction fell 0.8 percent on a monthly basis and 2.7 percent on an annual basis. Inputs related to energy plummeted again in January.
“A set of extraordinary circumstances has contributed to the ongoing decline in nonresidential construction input prices,” says ABC chief economist Anirban Basu. “Global commodity prices have been trending lower for months with limited, sporadic exception. The end of China’s construction bonanza has certainly contributed. Decreased demand for inputs to construction ranging from copper to iron ore has served to flood global markets with excess supply, leading to falling prices. Significant oil production among OPEC and non-OPEC nations alike has collided with flat demand, helping to push energy prices lower.”
Four main input prices expanded in January on a monthly basis, including iron and steel, which grew by 1.1 percent but have declined 22.3 percent year-over-year. Seven key input prices remained flat or declined on a monthly basis, including fabricated structural metal products, which fell 0.9 percent and 1.9 percent year-over-year.
“With Russia and Brazil remaining in recession and with the Chinese economy continuing to slow, input prices are likely to remain low for quite some time,” says Basu. “While it is possible that prices will begin to rise, increases are likely to be gradual absent some coordinated action by producers to limit supply. Falling input prices certainly carry positives, but there are also large risks involved. Corporate bond defaults are up, particularly in the U.S. energy sector. Job losses continue among energy workers and several states are already in recession. These factors alone are unlikely to drive the economy into recession, but rising defaults could make capital more difficult to access going forward, which could limit construction starts.”