ABC: Construction cost inputs up 1.1 percent from December

Construction input prices rose 1.3 percent in January, according to an Associated Builders and Contractors’ (ABC) analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index (PPI) data released Feb. 15.

Nonresidential construction input prices increased 1.1 percent for the month, says the Washington-based organization.

Overall construction and nonresidential construction input prices both are 4.9 percent higher than a year ago.

“Recent employment and retail sales reports indicate that the economy is not slowing nearly as quickly as predicted,” ABC Chief Economist Anirban Basu says. “That is the good news. The bad news is that the economy remains overheated, a phenomenon neatly reflected in the January PPI data, which indicated that construction input price gains accelerated on a monthly basis. For instance, construction machinery and equipment prices expanded 3.4 percent in January and are up more than 12 percent during the past year.

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While construction input costs were up 4.9 percent during the past year, cost increases have moderated since the onset of the COVID-19 pandemic. Since February 2020, construction material costs are up 37.7 percent, according to PPI data presented by ABC. While many commodities’ prices increased from December to January, a few costs decreased, including natural gas which was down 19.1 percent from December to January.

Basu says the strong employment report from January and “overheated” economy could mean the Federal Reserve will continue pushing the key federal funds rate higher.

“The implication is that the Federal Reserve will maintain higher interest rates longer,” said Basu. “Ironically, it is the current strength of the economy that makes a recession more likely sometime during the next 12 months. At some point, higher interest rates will meaningfully affect economic activity. With industry backlog high, according to ABC’s Construction Backlog Indicator, many nonresidential contractors will feel little to no effect from higher interest rates in 2023. But in certain construction segments and locations, these dynamics could make the next two years more challenging.”