Construction Input Prices Rise 4.6% in May

WASHINGTON, DC — Construction input prices increased 4.6% in May compared to the previous month, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices increased 4.8% for the month.

Construction input prices are 24.3% higher than a year ago, while nonresidential construction input prices increased 23.9% over that span. Similar to last month, all three energy subcategories registered significant year-over-year price increases. Crude petroleum has risen 187%, while the prices of unprocessed energy materials and natural gas have increased 100% and 90%, respectively. The price of softwood lumber has expanded 154% over the past year.

“The specter of elevated construction input prices will not end anytime soon,” said ABC Chief Economic Anirban Basu. “While global supply chains should become more orderly over time as the pandemic fades into memory, global demand for inputs will be overwhelming as the global economy comes back to life. Domestically, contractors expect sales to rise over the next six months, as indicated by ABC’s Construction Confidence Index. This means that project owners who delayed the onset of construction for a few months in order to secure lower bids may come to regret that decision.

“Many economists continue to believe that the surge in prices is temporary, the result of an economic reopening shock,” said Basu. “To a large extent, they are correct. The cure for high prices is high prices. When prices are elevated, suppliers have greater incentive to boost capacity and bolster output. That dynamic eventually results in a downward shift in prices. Operations at input producers should also become smoother over time as staff is brought back and standard operating procedures are reestablished.

“Still, there are some things that have changed during the pandemic and will not shift back,” said Basu. “For instance, money supply around the world has expanded significantly. Governments have been running large deficits. This means that some of the inflationary pressure that contractors and others are experiencing may not be temporary, and that inflation and interest rates may not be as low during the decade ahead as they were during the decade leading up to the pandemic.”

Visit abc.org/economics for the Construction Backlog Indicator and Construction Confidence Index, plus analysis of spending, employment, GDP and the Producer Price Index.