WEDNESDAY, MAY 15, 2024
The Associated Builders and Contractors have released new analyses from April, revealing that despite backlog and construction material price increases, contractors are remaining confident.
However, high interest rates, inflation, supply chain issues and labor shortages still remain persistent problems for the industry.
Producer Price Index
According to the analysis of the U.S. Bureau of Labor Statistics Producer Price Index, construction input prices increased 0.5% in April compared to the previous month. Nonresidential construction input prices also increased 0.6% for the month.
Overall, construction input prices are reportedly 2.3% higher than a year ago, while nonresidential construction input prices are 2.2% higher.
Looking at energy, which led the price surge, prices increased in two of the three subcategories for the month. Crude petroleum prices and unprocessed energy materials increased by 10.6% and 8.2%, respectively; however, natural gas prices were down slightly by 0.9%.
“Construction input prices jumped half a percentage point higher in April and have increased 3.5% over the first four months of the year,” said ABC Chief Economist Anirban Basu.
“While iron, steel, asphalt and gypsum product prices fell in April, oil and copper prices surged, driving the monthly increase. Rising input prices will put pressure on profits at a time when nearly 1 in 4 contractors expect their margins to contract over the next two quarters, according to ABC’s Construction Confidence Index.
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The Associated Builders and Contractors have released new analyses from April, revealing that despite backlog and construction material price increases, contractors are remaining confident. |
“Perhaps more importantly for contractors, the overall Producer Price Index reading for final demand goods and services increased 0.5% in April. This is yet another sign that inflation is accelerating and suggests that interest rates are set to stay higher for longer.”
Construction Backlog, Contractor Confidence
The ABC also found that its Construction Backlog Indicator increased to 8.4 months in April. According to a member survey conducted April 22 to May 6, the reading is down 0.5 months from last year, but expanded 0.2 months from the prior month.
Backlog reportedly declined on a monthly basis for the largest and smallest contractors by revenue and grew for those with $30-$50 million and $50-$100 million in annual revenues. On an annual basis, only contractors with $30-$50 million in annual revenues have experienced an increase in backlog.
The backlog revealed an increase in a handful of sectors, including:
The backlog fell in several sectors, including:
The Commercial and Institutional Industry remained stagnant at 8.5.
“The Federal Reserve began ratcheting up interest rates more than two years ago but one would not know it based on construction confidence and backlog,” said Basu.
“ABC measurements reflect ongoing momentum in the nation’s nonresidential construction sector. While there are occasional hints of softness in certain segments and over certain periods, the average contractor continues to report solid backlog and a belief that sales, employment and profit margins will expand over the next six months.”
The Construction Confidence Index readings for sales and profit margins fell slightly in April, the association says, while the reading for staffing levels improved. All three readings remain above the threshold of 50, indicating expectations for growth over the next six months.
“Time will tell whether this optimism is justified,” said Basu. “Coming into the year, many expected that interest rates would fall markedly in 2024. Given stubbornly elevated inflation, that will not occur. Project financing costs are poised to remain higher for longer. Project cancellations and postponements have been on the rise.
“Moreover, a new set of supply chain issues has emerged, driving up materials costs and prospectively weakening industry margins. Workers also are becoming more expensive, in part because the construction wage premium has shrunk over the past several years due to rapidly rising compensation levels in competing segments like logistics and retail. The implication is that construction compensation levels will need to rise for the industry to be able to staff up more fully.”
Tagged categories: Associated Builders and Contractors; Associated Builders and Contractors Inc. (ABC); Building materials; Business conditions; Construction; Contractors; Economy; Good Technical Practice; Industry News; Market; Market data; Market forecasts; Market trends; Program/Project Management; Projects - Commercial
