Forecasts & statistics

Construction material prices surge with largest monthly increase in a decade

Prices for inputs to construction materials expanded 2.2 percent in May and are 8.8 percent higher than at the same time one year ago, according to an analysis of U.S. Bureau of Labor Statistics data by the Associated Builders and Contractors (ABC), Washington, released June 13. This represents the largest monthly increase since May 2008. Nonresidential construction input prices increased 2.3 percent for the month and 8.9 percent for the year.

“While rapidly rising construction materials prices partially reflect economic strength, for the most part, today’s release should be viewed as bad news,” ABC Chief Economist Anirban Basu says. “As economists have been suggesting for many months, inflationary pressures are building. One can observe this in labor markets as well as in the price of gasoline, health care and construction materials.

“The current economic expansion has been built in large measure on persistently low interest rates, which stand to eventually disappear as inflationary pressures become increasingly apparent. Real estate and construction cycles are especially vulnerable to increases in borrowing costs.

“Construction materials are becoming increasingly expensive because of policymaking,” Basu explains. “All eyes are on prices of metals, which are increasing briskly. On a year-over-year basis, iron and steel prices are up nearly 13 percent. Steel mill product prices are up nearly 11 percent. Separately, the price of softwood lumber, which is the subject of a dispute with the Canadians, is up more than 15 percent compared to a year ago.

All of this suggests that contractors should be rooting vigorously against full-blown trade wars.”