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Escalating material prices, interest rates cloud 2020 market

Source: Associated Builders & Contractors, Washington, D.C.

ABC Chief Economist Anirban Basu tells members in his mid-year outlook that the nonresidential construction sector will remain stable for the second half of 2018, yet warns of a potential economic downturn in 2020, owing to a rapid rise in interest rates and materials prices.

“Contractors are becoming more and more concerned about surging materials prices—especially metals,” he affirms. “On a year-over-year basis, iron and steel are up 13.5 percent, which not only impacts a contractor’s margins but could potentially diminish demand for construction services overall.”

Prices for inputs to the overall U.S. construction industry expanded 2.2 percent in May, the largest monthly increase in 10 years. Prices expanded again in June by 0.8 percent and are 9.6 percent higher than at the same time one year ago, according to recently released U.S. Bureau of Labor Statistics data.

“Despite record low unemployment in the United States, an overall lack of skilled laborers in the construction sector and downstream markets contributes to the uncertainty,” Basu observes. “From electricians to painters to estimators, industry leaders are growing increasingly concerned about the dearth of skilled construction professionals and how human capital shortages have trickled down the supply chain. This will not only contribute to increased compensation costs but also increased inflation and higher interest rates, which could potentially hinder both construction and real estate sector growth.”

The full forecast is covered in “2018 Mid-year Economic Outlook: A Time of Growth and Intrigue,” posted here.