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Construction: What’s It Cost?

Prices for mixed bag of products and materials that are used by the construction industry saw reverses in medium-term trends in September and October but overall the cost of construction maintained the same relationship to consumer prices as has held for the past couple of years. With few exceptions, any significant movement in prices has been for materials that are heavily used in residential construction, which continues to surge.

Among the items changing direction were lumber, which showed another one percent increase following a decline of 2.8 percent during the summer months. For the twelve-month period, lumber prices are up roughly six percent, with softwood framing lumber rising 10.8 percent from September 2012 to September 2013. Asphalt paving prices fell 0.6 percent, reversing six months of increases. Paving costs are forecasted to continue to soften throughout the balance of 2013, ending the year less than 0.5 percent above 2012. According to a forecast by IHS Global Insight, asphalt prices will remain flat through 2014.

By October, manufacturers had begun indicating pricing changes that are anticipated for the beginning of 2014. Thus far there have been few significant changes. Cement manufacturers have indicated an increase of more than five percent, which should impact the price of concrete and concrete masonry products. Drywall makers have again announced an aggressive increase of 20 percent, effective January 2014.

Bernard Markstein, economist for Reed Construction Data offered some guidance for those interested in the drywall price. “Increases for drywall were announced three months in advance and put in place in January,” he relates. “For the past two years the producers announced a 20 percent increase but only got about 15 percent to stick. I expect that will be the case again in 2014.”

One potential factor that should be watched is the recovery of the European economy, which is becoming more prevalent in forecasts about the global economy for 2014. A more robust European market would be good news for the Chinese and Indian economies and would trigger higher-than-expected growth across the globe. If such a forecast were to come to fruition, demand for materials like cement, diesel and steel – which have global marketplaces – would increase at a faster pace than any time since the financial crisis. It was demand from the emerging BRIC economies that helped drive the price spikes for these basic materials in the middle of the last decade, so it will be worth keeping an eye on any unusual growth in construction overseas.

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