Sources: Associated Builders & Contractors, Washington, D.C.
An Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics Producer Price Index (PPI) data indicates that construction input prices decreased 1.3 percent on both a monthly and year-over-year basis, the latter metric representing the first such occurrence in nearly three years.
Overall, nonresidential construction input prices declined 1.4 percent from May 2019, but are down just 0.8 percent from June 2018. Among the 11 sub-categories, only concrete products (+0.9 percent) and natural gas (+1.6 percent) prices increased in June against prior-month levels. On a yearly basis, sub-categories exhibiting the greatest prices are softwood lumber (-23.1) and crude petroleum (-22.2).
“Eighteen months ago, surging materials prices represented one of the leading sources of concern among construction executives,” says ABC Chief Economist Anirban Basu. “That was a time of solid global economic growth and the first synchronized worldwide global expansion in approximately a decade. Yet things can change dramatically in a year and a half. According to [PPI] data, construction materials prices are falling, in part a reflection of a weakening global economy.
“Given that the United States is in the midst of its lengthiest economic expansion with an unemployment rate at approximately a 50-year low, such low inflation remains a conundrum. However, the June PPI numbers indicate that those commodities exposed to global economic weakness have been the ones to experience declines in prices, with the exception of concrete products and natural gas. While America has begun to export more natural gas, today’s prices largely reflect the domestic demand and supply.”
“With the global economy continuing to stumble, there is little reason to believe that materials prices will bounce back significantly,” he adds. “Of course, trade issues and other disputes can quickly alter the trajectories of prices. If economic forces are allowed to play out, contractors should be able to focus the bulk of their attention on labor compensation costs and worry relatively less about materials prices.”