Construction material costs decrease in December, contracters cautious of rise in 2023

Plunging prices for diesel fuel, lumber and steel cooled inflation for materials and services used in construction in December, but relief may be short-lived, according to an analysis of government data by the Arlington, Virginia-based Associated General Contractors of America (AGC).

AGC officials say that contractors identified material costs as one of their top concerns in a survey the association released this month.

“While producer price indexes for construction inputs fell in December, they still outpaced other inflation measures for the year,” AGC Chief Economist Ken Simonson, says. “In addition, some prices have already turned higher in January. Contractors are right to rank materials costs as a major concern for 2023.”

The producer price index for inputs to construction—the prices charged by goods producers and service providers such as distributors and transportation firms—rose 7.2 percent in 2022, despite decreasing 1.8 percent from November to December. The year-over-year rise outpaced the 6.5 percent increase in the consumer price index—the best-known measure of inflation, the economist notes.

The one-month decline was driven by falling prices for fuel, lumber and steel while other input costs rose. The producer price index for diesel fuel tumbled 28.7 percent in December; the index for lumber and plywood slumped 3.7 percent; and the index for steel mill products slid 2.7 percent. In contrast, the index for ready-mix concrete jumped 1.4 percent for the month and 13.6 percent for the year. The index for architectural coatings such as paint rose .5 percent in December and 26.1 percent year-over-year. The index for copper and brass mill shapes climbed 1.5 percent for the month and the index for aluminum mill shapes increased 1.3 percent.

Some price declines are likely to reverse soon, Simonson says. Steel producers have sharply raised prices in recent weeks for hot-rolled coil—the raw material for some construction steel. Major producers of insulation and tile have announced price increases for February. In addition, recent spikes in futures prices on commodities markets for copper and aluminum may signal higher costs for these products soon, he says.

Simonson says that more than 1,000 contractors responded to the survey that the AGC and Sage released earlier in January. Material costs and an economic slowdown or recession were the most frequently listed concerns, with both marked as among the biggest concerns for nearly three out of four firms.

AGC officials say that the Buy America requirements that were part of the Bipartisan Infrastructure Bill and the confusion associated with the administration’s haphazard implementation of the requirement will make it hard for contractors to find materials to complete infrastructure projects, raise the cost of those materials and lead to delays in completing the work.

“While most construction products are made in the U.S., very few meet the bill’s extremely strict interpretation of American made,” AGC CEO Stephen E. Sandherr says. “Limiting the supply of materials available and issuing vague guidance for state and local officials to follow will only make it harder and costlier to complete needed infrastructure upgrades.”