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Stimulus money drives up price of construction materials


Construction materials prices inched up 1 percent in June from May, according to the July 14 producer price index report by the U.S. Labor Department.

The prices of crude energy material, natural gas and crude petroleum increased in June from May, as well as prepared asphalt and tar roofing, softwood lumber and nonferrous wire and cable prices, which were up 5.6 percent, 1.7 percent and 0.8 percent, respectively, for the month.

The cost of fabricated structural metal products dipped 0.7 percent for the month and no change was reported in the prices of fabricated ferrous wire products or plumbing fixtures and fittings.

All categories mentioned in the release posted a year-over-year price decrease, with the exception of prepared asphalt and tar roofing and plumbing fixtures and fittings, which were up 38.9 percent and 0.5 percent, respectively. Overall, finished-goods prices edged up 1.8 percent from May to June, but were still down 4.6 percent from the same time last year.

“When the economy is expanding, producer prices rise, making it more expensive for suppliers to expand, which limits the pace of expansion,” said Anirban Basu, chief economist with Associated Builders and Contractors Inc. “However, with the economy shrinking as it is now, producer prices tend to decline, which induces cost-efficient supply and limits the extent of the downturn.”

Basu said that producer prices represent an example of a “self-equilibrating (mechanism) designed to prevent economies from severe overheating or intolerable contraction.”

In a shrinking economy, Basu said, prices tend to decline, which encourages “cost-efficient supply and limits the extent of the downturn.” However, “despite the ongoing global economic downturn,” he said, the anticipation of a significant amount of future construction, due to the federal stimulus package, is likely having an impact on materials prices.

“Input prices are not declining as one would otherwise predict,” said Basu.

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