Dive Brief:
- Construction input prices ticked back up 1% in January largely due to increases in energy costs, according to a new Associated Builders and Contractors’ analysis of U.S. Bureau of Labor Statistics Producer Price Index released Friday.
- The jump marks the first overall price increase after three months of moderation, highlighting the ongoing presence of material price volatility, said Anirban Basu, ABC chief economist. Overall construction costs remain 0.4% higher than a year ago, while nonresidential construction input prices gained 0.7% during the last 12 months.
- “Construction materials prices surged in January, ending a streak of three consecutive monthly declines,” said Basu in the release. “While this represents the largest monthly increase since August 2023, input prices are essentially unchanged over the past year, up less than half a percentage point.”
Dive Insight:
Leading up to the report, Ken Simonson, chief economist at the Associated General Contractors of America, had already voiced concerns that material volatility was “not completely dead,” even with the three months of price contractions.
He added in December that high interest rates, strict equity requirements and extreme lead times for certain materials continue to hinder overall construction activity, especially on the private side. Basu also pointed out that interest rates may continue to stay elevated.
“The broader PPI measure of prices received by all domestic producers of final demand products and services rose 0.3% in January, well above the expected 0.1% increase,” said Basu. “This, along with the hotter-than-expected consumer price index data released earlier this week, suggests that the Federal Reserve may keep interest rates elevated for longer than previously expected.”
Crude petroleum prices jumped 6.1% in January, followed by a 5.4% gain in steel mill products, according to the U.S. Bureau of Labor Statistics data. Other materials, such as iron and steel, jumped 3.5% in January, as well.
However, despite the 1% overall jump in January, prices have remained largely unchanged over the past 12 months. For that reason, many contractors still expect their profit margins to expand over the next six months, said Basu.