Despite reflecting a sluggish economic environment, a third consecutive decline in prices of construction materials such as iron and steel in the United States has been heralded by one commentator as a positive for the building industry – as is other data showing a growing number of projects in the pipeline.
Having dropped 0.7 per cent during the month of July, overall prices for construction materials are down by 0.6 per cent on a year by year basis – the first year of year decline since November 2009, according to the latest Producer Price Index report released by the US Department of Labour.
Speaking specifically about the non-residential sector, Associated Builders and Contractors (ABC) chief executive Anirban Basu said the result is unequivocally good news, not just because of the immediate easing of profit margin pressure but also because lower costs provide a more stable and conducive environment for large-scale projects to go ahead.
“Today’s construction materials price report should be viewed by the non-residential construction industry as good news,” Basu said. “Lower construction materials prices translate into more attractive project pro-formas, which in turn make it more likely that a project will be financed and move forward.”
Basu acknowledged that lower prices are partially reflective of a subdued environment, but says that even in a slow economy, there are promising signs, such as anecdotal evidence suggesting that banks are becoming more aggressive in their lending.
For the first time in several months, he says ‘[a] more robust recovery in non-residential construction spending in conceivable.’
The main price decreases in July occurred in iron and steel – which fell 3.7 per cent during the month and are down 9.7 per cent compared to this time last year – and softwood lumber, where prices also dropped 3.7 per cent but are still 5.9 per cent higher than in July, 2011.
On the other side of the equation, prices for prepared asphalt, tar roofing and siding (up 5.4 per cent) made a partial recovery but are still down 3.8 per cent this year.
In terms of other products, crude energy and non-ferrous wire and cable prices edged up slightly last month but remain 19.1 per cent and 8.9 per cent down on their levels from one year ago, respectively.
Growing Work Orders
Lower prices are not the only piece of good news in the latest data.
Having declined in the previous two quarters, the latest Construction Backlog Indicator published by ABC rose by 4.3 per cent in the second quarter of 2012.
In total, construction firms throughout the US had 7.7 months’ worth of work on their books as at June 30 – down from 8.1 months’ work at the same time last year but up from 7.4 months’ work in March. That left the number of work in the pipeline at a reasonably healthy level in a recent historic context.
Basu said the data may herald a moderate pickup in activity.
“The latest CBI data is now projecting gradual acceleration in non-residential construction spending and perhaps a slight increase in the overall pace of construction activity going forward,” he said.
The backlog of work is strongest in the south (8.75 months), followed by the west (7.5 months) the northeast (7.28 months) and the middle states (6.73 months).
