“The construction industry benefited from a one-month reprieve in materials price increases in October, based on today’s release. The fact that materials prices have stabilized should be viewed as good news to the U.S. construction industry,” Anirban Basu, ABC chief economist, says. “Most stakeholders agree that labor costs will continue to rise as America hurtles toward full employment. Significant increases in materials prices would further squeeze construction firms’ profits margins, or alternatively would make it less likely that planned construction projects would move forward.
“Still, on a year-over-year basis, some materials prices are up substantially,” Basu says. “A faster growing global economy, combined with China’s commitment to suppress excess steel manufacturing capacity, has helped to produce a nearly 14 percent increase in iron and steel prices over the past year. U.S. trade policy has likely contributed to a greater than 15 percent increase in softwood lumber prices over the past year.
“Where materials prices will go from here is pure guesswork,” Basu says. “While it is true that the global economy continues to improve, recent increases in commodity prices are likely triggering increases in quantity supplied, at least in certain categories. That supply response should help keep a lid on construction input prices over the next few months even in the context of growing demand for materials globally.”