Construction supply costs down over fiscal cliff worries

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The costs of construction materials and other construction inputs have fallen steeply, likely as a result of reduced demand due to fiscal cliff concerns, according to a report from the Associated General Contractors of America.

For the 12 months ending in November, the producer price index for all construction inputs rose 1.0 percent, closely matching the increase in prices contractors charge for new buildings. Between October and November, however, construction materials prices fell by 1.1 percent.

“The recent price decreases are very welcome after years of price spikes that contractors could not pass on in a weak construction market,” said Ken Simonson, chief economist for the construction trade association. “These price declines may be yet another sign that the threat of the fiscal cliff has already taken a toll on demand.”

The overall decrease was offset by increases in prices for gypsum products such as wallboard (0.4 percent for the month and 14.9 percent for the year), lumber and plywood (1.7 percent for the month and 9.3 percent for the year) and architectural coatings (unchanged for the month, but up 10.5 percent for the year).

“Demand for gypsum and architectural coatings products has risen sharply as apartment and home construction have soared in recent months,” Simonson said in a statement. “The gypsum and lumber price increases might also reflect the surge in demand from areas hit by Hurricane Sandy.”

A survey of nearly 600 construction firms release by the association last week indicated that many firms have already changed business practices because of the twin threat of spending cuts and tax increases included in the fiscal cliff.  In particular, many firms noted they were cutting back on investments in construction equipment and supplies, likely contributing to the decline in materials prices.