WASHINGTON, DC — Construction input prices rose 1.3% in January, according to an Associated Builders and Contractors analysis of the US Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices increased 1.1% for the month.
Overall construction input prices are 4.9% higher than a year ago, which is the smallest annual increase since January 2021. Nonresidential construction input prices are also up 4.9% since January 2022.
Good News – Bad News
“Recent employment and retail sales reports indicate that the economy is not slowing nearly as quickly as predicted,” said ABC Chief Economist Anirban Basu. “That is the good news. The bad news is that the economy remains overheated, a phenomenon neatly reflected in the January PPI data, which indicated that construction input price gains accelerated on a monthly basis. For instance, construction machinery and equipment prices expanded 3.4% in January and are up more than 12% during the past year.
“The implication is that the Federal Reserve will maintain higher interest rates longer,” said Basu. “Ironically, it is the current strength of the economy that makes a recession more likely sometime during the next 12 months. At some point, higher interest rates will meaningfully affect economic activity. With industry backlog high, according to ABC’s Construction Backlog Indicator, many nonresidential contractors will feel little to no effect from higher interest rates in 2023. But in certain construction segments and locations, these dynamics could make the next two years more challenging.”
Visit abc.org/economics for the Construction Backlog Indicator and Construction Confidence Index, plus analysis of spending, employment, job openings and the Producer Price Index.
Construction material prices are continuing to climb with an underlying trend of increasing demand on the market, according to the ABC monthly index released yesterday.
The survey revealed that the price of construction materials increased by 1% in January 2021, compared to December 2020. This marks the sixth consecutive month of increases in construction material prices since June of last year.
Steel and iron products saw the biggest increase, rising by 11.9% compared to the previous month. The increasing cost of iron ore, limestone and other raw materials has been cited as the main cause of this rise.
Ceramic tiles also rose in price, up 11.3% from December, with copper products increasing by 8.7% and wood products rising by 7.4%. Weaker demand for wood produce indicates an ongoing decrease in the price for this sector in the coming months.
Overall, construction material prices are expected to remain on an upwards trajectory in the coming months, and may reach a peak later this year. The fourth quarter of 2021 is expected to be the strongest period for construction materials prices, as manufacturing cuts start to take effect.
The rise in construction material prices is a warning sign of wider issues in the industry, and further increases could put pressure on already stretched construction budgets.
It is important to track these changes and monitor the underlying trends so that construction companies can adjust their budgets accordingly.