Rising construction material prices cause for concern, ABC says

According to Associated Builders and Contractors analysis, rising construction material prices could interfere with economic progress.

Subscribe
July 11, 2018
Edited by Adam Redling
Association Activities Construction Forecasts & Statistics

According to Associated Builders and Contractors (ABC), Washington, analysis of U.S. Bureau of Labor Statistics data released July 11, construction material prices rose 0.8 percent in June and are 9.6 percent higher than they were at the same time one year ago.

June represents the latest month associated with rapidly rising construction input prices. Nonresidential construction materials prices effectively mirrored overall construction prices by rising 0.9 percent on a month-over-month basis and 9.8 percent on a year-over-year basis.

“In general, this emerging state of affairs is unfavorable,” ABC Chief Economist Anirban Basu says. “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. 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. 

“Some contractors may note the similarities between the current period and the period immediately preceding the onset of the global financial crisis. 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, construction input prices are positioned to increase further going forward, though the current rate of increase appears unsustainable.”