Sources: Associated Builders & Contractors, Washington, D.C.; CP staff
New U.S. Bureau of Labor Statistics Producer Price Index data confirms rampant inflation (> 50 percent) levels among eight of 11 Nonresidential Construction input subcategories. An Associated Builders & Contractors analysis finds segment prices up 21.9 percent year over year through May, and 44.4 percent since February 2020. Plumbing Fixtures and Concrete Products prices have exhibited the most stability, respectively rising 11.3 percent and 12 percent and 14.5 percent and 16.8 percent over the 12- and 26-month periods.
“Inflationary pressures show no signs of abating,” says ABC Chief Economist Anirban Basu. “For months, economists and others have been expecting inflation to peak and then subside. Instead, the Russia-Ukraine war has disturbed markets, driving energy prices higher. Those prices are now circulating across the economy, affecting manufacturing and distribution, and there is little prospect for inflation to meaningfully subside during the weeks ahead.
“Federal Reserve policymakers will continue to aggressively combat inflationary pressures. But what the Federal Reserve most directly affects is demand for goods and services, not supply. By tightening monetary policy and raising interest rates, it will suppress demand over the rest of the year. Eventually, suppliers will respond to diminished demand. This dynamic will quite likely drive the economy into recession either later this year or at some point in 2023.”
“Based on the historical lag between the performance of the economy and nonresidential construction spending, more difficult times could be ahead for contractors in 2024 or 2025,” he cautions. “Looking at the most recent reading of ABC’s Construction Confidence Index, contractors are already seeing momentum slow. The likely exception is public contractors, who will continue to benefit from stepped-up infrastructure spending.”