ABC Says Latest Price Increase is ‘Bad News’

MONDAY, MARCH 18, 2024


Construction input prices have reportedly jumped 1.4% in February compared to the previous month, according to an analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data.

The Associated Builders and Contractors also found that nonresidential construction input prices increased 1.3% for the month.

Looking at a year ago, overall construction input prices are reportedly 1.5% higher, while nonresidential construction input prices are 1.8% higher.

“For the last several weeks, inflation data have been coming in hotter than anticipated,” said ABC Chief Economist Anirban Basu. “This was also true for the February construction input price data, which indicated that upward price pressures are reemerging after a period of calm.

“Monthly inflation was apparent in several categories, including brick/tile, gypsum and steel mill products. With supply chains around the world rattled by military conflicts and other phenomena and workers’ wages far higher than they once were, there is reason to believe that inflation will remain stubbornly high for months to come.”

Prices increased in two of the three energy subcategories last month. Crude petroleum input prices were up 7.5%, while unprocessed energy materials were up 3.6%. Natural gas prices declined 7.2% in February.

“For contractors, today’s release is bad news for at least two reasons,” said Basu. “First, higher input prices implicate lower demand for construction services all else equal. With project financing costs already elevated, project owners are less likely to move forward with construction work given already high and rising input costs.

“Second, recent inflation data render it more likely that interest rates will remain higher for longer. For weeks, the conventional wisdom has been that the Federal Reserve was poised to reduce interest rates. Today’s inflation data, along with other releases, suggest that hopes for rapidly declining rates were somewhat premature.”

Backlog, Confidence Declines

Earlier this month, the ABC reported that contractors are remaining confident despite the Construction Backlog Indicator falling to 8.1 months in February. According to an ABC member survey conducted from Feb. 20 to March 5, the reading is down 1.1 months from February 2023.

Backlog fell reportedly for every size of contractor except for those with under $30 million in annual revenues in February. Over the past year, however, the largest contractors—those with greater than $50 million in revenues—have experienced the greatest decline in backlog.

The backlog only increased in the Middle States region from 7.2 to 7.3; the West region from 5.3 to 7.9; and the less than $30 million company size, from 7.2 to 7.5. The remaining categories all decreased from the month prior:

  • the Commercial and Institutional industry, from 8.6 to 8.1;
  • the Heavy Industrial industry, from 10.9 to 9.2;
  • the Infrastructure industry, from 7.3;
  • the Northeast region, from 8.7 to 7.4;
  • the South region, from 11.4 to 9.9;
  • the $30-$50 million company size, from 9.2 to 8.4;
  • the $50-$100 million company size, from 10.9 to 10.5; and
  • the greater than $100 million company size, from 13.0 to 10.3.

ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels also decreased in February. However, all three readings remain above the threshold of 50, indicating expectations for growth over the next six months.

   

Tagged categories: Associated Builders and Contractors; Associated Builders and Contractors Inc. (ABC); Brick; Building materials; Business conditions; Coating Materials - Commercial; Construction; Contractors; Economy; Good Technical Practice; Market; Market data; NA; North America; Oil and Gas; Program/Project Management; Steel

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