Energy Material Prices Continue to Climb
While material prices are still slightly increasing, the pressure is reportedly on as energy costs lead these higher prices and are expected to persist.
An analysis of the U.S. Bureau of Labor Statistics Producer Price Index data by the Associated Builders and Contractors found that construction input prices and nonresidential input prices both rose 0.2% in September compared to the previous month.
On a year-over-year basis, overall construction input prices are 0.3% higher, while nonresidential construction input prices are 0.6% higher.
“Today’s PPI report indicates that while inflationary pressures persist economywide, materials price increases are no longer at the heart of this bout of excess inflation,” said ABC Chief Economist Anirban Basu. “When inflation began to emerge in 2021, supply chains ill-prepared to handle surging demand for goods and services during the early stages of post-pandemic recovery were among the primary culprits.
“Today, inflation is driven less by supply chain issues and more by structural labor market dynamics and geopolitics. Many contractors continue to indicate that their primary challenge is securing sufficient levels of workers. That will not change anytime soon and could only be countered by a sharp downturn in construction activity.”
The ABC notes that prices increased in all three energy subcategories in September, including: crude petroleum prices were up 10.1%; unprocessed energy materials prices rose 7.5%; and natural gas prices were up slightly by 0.1%.
“At this time, that sharp downturn is not anticipated,” said Basu. “Rather, contractors continue to report healthy backlog, plentiful bidding opportunities and expectations for sales, employment and profit margin growth during the months ahead, according to ABC’s Construction Confidence Index.
“Over the past year, materials prices have been roughly flat, though certain segments like concrete have continued to experience upward price pressures. Renewed conflict in parts of the world that produce a considerable amount of global energy could put more pressure on contractors during the months ahead, but such things are difficult to predict.”
Last Month’s Increases
Construction prices rose in August compared to the previous month, indicating “excess inflation” over the coming months, according to the prior ABC report. An analysis of the U.S. Bureau of Labor Statistics Producer Price Index data found that construction input prices and nonresidential input prices both rose 1.5% in August. These are up just 0.2% from a year ago.
Rising energy prices drove overall price increases in August, the association explains, with crude petroleum prices up 8.9% and unprocessed energy materials prices rising 5.4%.
Other than fuel, prices for most major construction inputs were stable or declined in August. Indexes for cement and architectural coatings such as paint were flat, while there were decreases of 0.2% in the index for plastic construction products, 0.5% for steel mill products and 0.4% for gypsum building materials.
According to an analysis of the data by the Associated General Contractors of America, officials noted that most other commodity prices were subdued. However, a recent AGC survey showed contractors continue to experience widespread problems finding qualified workers and the costs associated with those shortages.
Backlog, Confidence Activity
Last week, the ABC also released its Construction Backlog Indicator numbers for the month of September, reporting that the CBI declined to 9.0 months.
Previously, in August, the CBI reported that the backlog was down from the levels of the second quarter of 2022.
Though it declined last month, the South region reportedly continues to have the lengthiest backlog, which has been the case since October 2021. Over the past year, only the West has reportedly experienced increasing backlog.
The backlog revealed an increase in numbers over several sectors, including:
The backlog also fell in a variety of sectors, including:
ABC’s Construction Confidence Index reading for sales and staffing levels reportedly moved higher in September. The profit margins reading fell slightly. All three readings reportedly remain above the threshold of 50, indicating expectations for growth over the next six months.