Dive Brief:
- Construction input prices ticked down 0.3% in November largely due to a fall in gas and diesel costs, according to a new Associated Builders and Contractors’ analysis of U.S. Bureau of Labor Statistics Producer Price Index data released Wednesday.
- The drop marks two consecutive months of price alleviation, a welcome trend for contractors, said Anirban Basu, ABC chief economist. Overall construction costs remain 0.8% lower than a year ago, while nonresidential construction input prices fell 0.4% since last year, according to the report.
- “Falling, or at the very least stable, input prices should help to control construction cost increases in the coming quarters,” said Basu. “This is a welcome development for an industry still dealing with extraordinarily elevated financing costs and rising labor costs due to ongoing worker shortages.”
Dive Insight:
While an easing of pandemic-era price spikes is welcome news, construction has been grappling with new challenges this year.
High interest rates, strict equity requirements, banks that have restricted or exited commercial real estate and extreme lead times for certain materials continue to hinder overall construction activity, especially on the private side, according to Ken Simonson, chief economist at the Associated General Contractors of America.
“Contractors working on developer-financed projects — multifamily, warehouse, office, perhaps retail and lodging — are reporting multiple challenges that developers are experiencing,” said Simonson. “That is leading to some project deferrals, though not necessarily outright cancellations.”
While much of the recent relief stems from record domestic oil production and the resulting decline in gas and diesel prices, Basu notes other construction materials, such as iron, steel and lumber products, remain more affordable than last year.
And yet, Simonson pointed out some declines are better than others. The drop in lumber prices, for example, is good news for home builders and remodelers, but of minor importance to nonresidential construction and high-rise multifamily projects. He added material volatility, despite the two consecutive months of declines, “isn’t completely dead.”
For example, natural gas prices jumped 24.1% in October, followed by 1% rises in construction machinery and equipment, as well as for switchgear, switchboard and industrial controls equipment, according to the report.
Prices dropped in two of the three energy subcategories last month. Crude petroleum input prices fell 9.5%, while unprocessed energy materials prices decreased 3.2%. Iron and steel prices ticked down 0.1% from the previous month, while lumber dropped 0.7%, according to the report.