Construction Material Prices Tick Upwards

MONDAY, MARCH 20, 2023

According to an analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data by the Associated Builders and Contractors, construction material prices rose 0.4% in February. Overall, construction input prices are 2.6% higher than a year ago, while nonresidential construction input prices are 2.8% higher.

“While the February construction materials price inflation data appear benign, a peek behind the headline numbers indicates that price pressures remain abundant,” said ABC Chief Economist Anirban Basu. “As an example, the price of brick and structural clay tile expanded 3.4% for the month and is up nearly 9% over the past year.

“The price of copper wire and cable increased 3.3% on a monthly basis and is up 40% since February 2020. In large measure, sharp declines in energy prices have pushed headline numbers lower in recent months, but there is plentiful evidence of lingering materials price inflation and supply chain challenges in the data.”

Report Findings

Of the numbers, the ABC noted that natural gas prices fell sharply in February, down 41.4%, while crude petroleum prices rose 7.3%. Unprocessed energy materials prices were down 9.1% for the month.

Looking at some other specific product prices, adhesives and sealants were up 0.8%; concrete products were up 0.5%; iron and steel were up 2.9%; and lumber and wood products remained stagnant.

“With growing pressure on the global banking system and the Federal Reserve still wrestling with excess inflation, risks of recession continue to expand,” said Basu. “While contractors performing public construction and working on industrial megaprojects stand to fare well during the years ahead, the fortunes of many other contractors are increasingly threatened by elevated costs of capital, tightening financial conditions and the rising cost of delivering construction services.

“Eventually, these factors could whittle away at backlog, which is currently elevated, according to ABC’s Construction Backlog Indicator, creating greater challenges for contractors in 2024 and/or 2025.”

ABC also reported last week that the CBI increased to 9.2 months, 1.2 months higher than in February 2022. The ABC notes that the backlog rebounded last month and for the past four months has hovered around highs not seen since the start of the pandemic.

The Associated General Contractors of America’s analysis showed that the 0.4% increase from January to February is outpacing the 0.1% increase in contractors’ bid prices.

“Today’s price report shows that construction costs are not necessarily settling back to ‘normal’,” said Ken Simonson, the association’s chief economist. “A resurgence of prices for glass, metals, cement and paving materials suggests many projects may get more expensive in coming months.”

AGC officials added that the proposed Buy America requirements could severely limit construction firms’ ability to get construction materials and contribute to new inflationary pressure on the cost of those items.

“Limiting the availability of materials used on the billions in federally funded construction projects planned for the coming years will needlessly inflate the cost of construction and contribute to broader inflationary pressure,” said Stephen E. Sandherr, the association’s chief executive officer. “Instead they should allow for the same kind of flexibility on federally-funded state and local projects that exists when the federal government procures its own construction projects.”

Previous Reports

In its analysis last month, the ABC found that construction material prices rose 1% in January, about 5% higher from a year ago. Compared to a year ago, construction and nonresidential input prices remain 4.9% higher. However, the Association noted that this is the smallest annual increase for construction prices since January 2021.

According to the numbers reported for January, construction and nonresidential input prices  both increased in January at 1.3% and 1.1%, respectively. Since February 2020, this number has increased about 37%.

Looking at some specific product prices, adhesives and sealants were down 0.2%; concrete products were up 1.1%; iron and steel were up 0.5%; lumber and wood products were down 0.6%; and natural gas was down by 19.1%.

For the year over year change, these prices saw a 13.4% increase in adhesives and sealants; a 14.8% increase in concrete products; a 23% decrease in iron and steel; a 12.3% decrease in lumber and wood products; and 7.9% increase in natural gas.

The AGC noted in its own report that contractors have reported encountered a wide range of price changes for key construction inputs, with steep increases for fuel, concrete and gypsum products offsetting sharp declines in lumber and steel prices.

The PPI for inputs to new nonresidential construction—the prices charged by goods producers and service providers such as distributors and transportation firms—jumped 0.9% last month but rose by a modest 4.3% from January 2022. 

Association officials also noted that uncertainty remains regarding what materials qualify to be used on infrastructure projects funded by the bipartisan infrastructure law as part of the Buy America requirements. This has the potential to make it harder for contractors to find materials, raise the cost of those materials and lead to delays in completing the work.

Back in January, the ABC found that construction and nonresidential input prices dipped 2.7% in December—the largest logged drop since April 2020. However, compared to a year ago, construction and nonresidential input prices remained 7.9% and 7.6% higher, respectively.


Tagged categories: Associated Builders and Contractors; Associated Builders and Contractors Inc. (ABC); Associated General Contractors; Associated General Contractors (AGC); Building materials; Coating Materials; Construction; Economy; Good Technical Practice; Market; Market data; Market forecasts; Market trends; NA; North America; Program/Project Management

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