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Lower construction materials prices may kindle nonresidential construction


Construction materials prices continued their downward trend in April, falling 0.4 percent from the previous month, according to a May 14 report by the U.S. Labor Department.

Asphalt felts and coatings prices plunged 10.5 percent in April from March, the largest month-over-month decline in nearly 60 years. Fabricated structural metal products fell 1 percent, the seventh consecutive monthly decline, and fabricated ferrous wire prices were down 0.7 percent.

“Given the weakness of the broader economy, lower construction materials prices are a necessary ingredient to stimulate nonresidential construction in segments not directly impacted by the American Recovery and Reinvestment Act of 2009,” said Anirban Basu, chief economist with Associated Builders and Contractors Inc.

Basu cited seasonal demand and growing confidence in the global economy as two possible reasons for price increases of certain commodities in April from March, including a 2.9 percent uptick in crude energy and a 1.6 percent rise in softwood lumber. The price of plumbing fixtures and fittings increased by 0.5 percent.

Some believe recent increases in oil and other commodities prices are “a reflection of rising inflationary expectations,” Basu said, “which are emerging primarily due to a combination of extreme monetary and fiscal stimulus.”

“Whatever the explanatory factors, any consequential increase in construction materials prices would be unfortunate from a broader national perspective,” said Basu. “The nation remains in the midst of a period characterized by substantial infrastructure investment, and rising construction materials prices would ultimately hurt the ability of federal, state and local governments to (pursue) more infrastructure projects.”

“The decline in construction costs is good news for landlords and tenants who need to refit their spaces,” said Robert Bach, senior vice president and chief economist with Grubb & Ellis Co. in his May 18 Weekly Market Insight report. “A moderate increase in inflation might be considered good news for commercial real estate owners and investors; in the 1970s and early 1980s, when inflation was high, real estate was viewed as an inflation hedge along with gold and commodities.”

Overall, construction input prices have dropped 3.7 percent from the same time last year.

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