Construction Prices Continue to Rise

July 19th, 2016 by Editor

Construction input prices expanded 1.1 percent on a monthly basis in June, according to an analysis of the Bureau of Labor Statistics’ Producer Price Index released last week by Associated Builders and Contractors (ABC). This is the fourth straight month input prices have expanded following eight consecutive months of decline.

“Commodity prices stabilized in March and in many cases, including natural gas and oil, have been edging higher,” says ABC chief economist Anirban Basu. “Accordingly, construction materials prices are now on the rise, which all things being equal, translates into smaller profit margins. Alternatively, rising costs of construction may be passed along to owners of projects in certain instances.”

Basu says the inflationary impacts of rising materials prices coincide with a deepening skilled construction workforce shortage and a falling industry unemployment rate.

“The possibility that construction will become meaningfully more expensive on a per unit basis over the next year may induce more developers to move their projects forward in an effort to minimize the impact of rising prices,” he says. “Indeed, the Architecture Billings Index has been positive in recent months, signaling an active commercial construction market. However, commodity prices appear to have flattened recently after rising for much of the spring,” said Basu. “The implication is that construction input prices will not continue to rise at the pace observed in June, although stakeholders should not anticipate significant input price declines either.”

Despite the recent turnaround in input prices, construction materials prices collectively remain 2.5 percent below their year ago level. Nonresidential construction input prices expanded 1.2 percent in June but are still 2.6 percent beneath their year-ago level

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