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News July 26, 2018

Construction material prices increased in June

An Associated Builders and Contractors (ABC) analysis of information provided by the Bureau of Labor Statistics (BLS) shows construction material prices increased 0.8 percent from May to June, according to www.abc.org. On a year-over-year basis, the price of construction materials increased 9.6 percent.

Nonresidential construction material prices increased 0.9 percent from May to June and 9.8 percent between June 2017 and June 2018.

"In general, this emerging state of affairs is unfavorable," says ABC Chief Economist Anirban Basu. "Rapidly rising materials prices interfere with economic progress in numerous ways, including by making it less likely that a particular development will move forward. They also increase the cost of delivering government-financed infrastructure, raise costs for final consumers such as homeowners, renters and office tenants, and exacerbate overall inflationary pressures, which serves to push nominal borrowing costs higher.

"Materials prices are up roughly 10 percent in just one year, and certain categories have experienced significant rates of price increase," Basu continues. "Among these are key inputs that appear to have been impacted by evolving policymaking, including the price of crude petroleum, which is up 49 percent over the past year; iron and steel, which is up nearly 14 percent; and softwood lumber, up 23 percent."

Basu compares the current situation with the situation that preceded the 2008 recession.

"Some contractors may note the similarities between the current period and the period immediately preceding the onset of the global financial crisis," Basu says. "Materials prices, for instance, were rising rapidly for much of 2006 and 2007 as the economic expansion that began in 2001 reached its final stages. Today's data will provide further ammunition for policymakers committed to tightening monetary policy and raising short-term interest rates.

"With no end in sight regarding the ongoing tariff spat between the United States and a number of leading trading partners and with the domestic economy continuing to expand briskly," Basu continues, "construction input prices are positioned to increase further going forward, though the current rate of increase appears unsustainable."

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