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Construction Cost Trends—January 2016

Posted: January 15, 2016 | Cost Trends

Source: US Department of Labor, Producer Price Index

Housing is still growing at a pretty good rate. It is up 10%, and along with consumer spending it’s helping to keep our economy growing at a positive but tepid rate of 2%. We hear stories of the “New Normal” and a slower growth path, but maybe we are seeing the reality of a “services” type economy versus the manufacturing type which we were accustomed to. This still bodes well for the construction industry and we should see continued growth in the 8 to 10% range.

CONSTRUCTION MATERIALS

Prices are flat to down for almost all construction products. Inflation is still low and economists project at least another several years of flat prices. However, some commodities are in freefall and show little chance of recovering soon. Copper is 25 to 30% off and oil is 40 to 50% off. These two important items are leading the way for the rest of the pack and until Asia and Europe get back to some sort of sustained growth, the situation will probably continue. The prices for all construction materials are down from last year.

LUMBER

Same story, just a year later. After the hefty increases of the last 5 years, the price of lumber may have finally ended its upward trajectory. Since 2009 it posted gains of 40%. Now it is beginning to come down from those disastrous levels. As housing recovers, lumber follows. But new mills have come on line, and as housing moderates, lumber prices are now leveling off and are flat compared to last year.

CEMENT AND CONCRETE PRODUCTS

Contrary to some reports, the Producer Price index for concrete products shows a decline of almost 8%. It’s true that cement is down, but only in the 2-3% range. Stone and sand may be down due to dramatic slide in the price of diesel fuel. For the last two years, the components of ready mix all went in different directions, a possible explanation for the volatility we see in concrete product prices. We will need to watch this a bit closer.

STEEL PRODUCTS

Once the component everyone watched, steel is now down to flat. It 's down 1% this year, and down 3% for the last 6 years. Until the emerging markets get back to their unprecedented growth (which seems unlikely) steel will continue to languish at its present level.

ALUMINUM SHEET

Last year we reported 12% gains for aluminum. Now we are seeing a complete reversal of fortune with decreases of 12 to 15%. We can clearly see the dramatic volatility of this product in the chart below and its future is very difficult to predict.

COPPER

Copper continues its losing trajectory, registering a loss of 30% for the last 12 months. It’s now down to the price level of 2005. In 2010, copper was trading at $4.50 per pound and at the time of publication it’s trading at a little over $2.00 per pound. Another one to watch for 2016.

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