Construction Materials Prices Should Cheer Contractors

Construction input prices declined 1.2 percent in October on a monthly basis, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data released Wednesday. Nonresidential construction input prices fell 1.1 percent for the month.

Construction input prices are 1.1 percent lower than a year ago, while nonresidential construction input prices are 0.7 percent lower. Prices fell in 2 of the 3 energy subcategories last month. Crude petroleum input prices were down 2.9 percent, while unprocessed energy materials were down 0.3%. Natural gas prices rose 10.9 percent in October. Iron and steel prices fell 2.3 percent.

“The October construction materials prices report should be cheered by most contractors,” says ABC Chief Economist Anirban Basu. “[Tuesday’s] Consumer Price Index data and [Wednesday’s] Producer Price Index data indicate that inflation is declining. Not only does that translate into less rapid increases in the price of many key construction inputs, but it also signifies that the Federal Reserve is poised to begin reducing interest rates at some point next year. That will support an improving project financing environment, increasing demand for construction services in the process.

“That does not mean that all risks have disappeared,” says Basu. “Among the reasons for inflation’s retreat is a slowing economy. While financial markets have been laser-focused on good news on the inflation front in recent days, less attention has been invested in the downside risks to the economy, including growing consumer indebtedness, tighter credit conditions, geopolitics and the impact of the federal government’s insatiable appetite to take on more debt.”