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05-19-20 | Economic News

Construction Input Prices Fall 4.4%

Drop Last Month Could Help Stabilize Nonresidential Construction Sector

Due to the COVID-19 crisis, global demand for many construction materials has caved, placing downward pressure on aggregate price levels.

According to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index data, total construction input prices declined 4.4% in April month-to-month, led by nonresidential construction prices, which experienced a 4.2% reduction.

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Among 11 subcategories, nine experienced monthly price declines. All three energy subcategories considered in this release were lower in April, with crude petroleum down 48.9% and natural gas down 20.4%.

The only subcategories that didn't experience monthly price decreases were concrete products, which increased 0.1%, and plumbing fixtures and fittings.

"There has been a considerable amount of chatter regarding inflationary pressures recently, given the liquidity injections implemented by the Federal Reserve and trillions of dollars of additional federal spending," says ABC chief economist Anirban Basu. "While inflation may rear its ugly head as the economy recovers from the COVID-19 crisis, for now it is deflationary pressures that dominate. Global demand for energy and many other items has collapsed, placing downward pressure on aggregate price levels.

"For project owners, this may be an important reason to move forward with planned construction projects," Basu reasons. "There are cost savings to be reaped during this period as materials prices, including energy prices, falter. Moreover, initiating construction now may position projects to come online as the broader economy begins to recover in earnest."

And he adds, "The downward pressure on materials prices also makes it more advantageous for the federal government and other levels of government to invest in infrastructure. Unfortunately, state and local government budgets are being hammered by a paucity of income, sales, hotel and other tax collections. All things being equal, that leaves less money to finance infrastructure projects and makes it less likely that the public sector will take full advantage of presently low borrowing costs. All of this suggests that the federal government should fashion a significant infrastructure-oriented stimulus package in the very near term." 

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