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Construction Material Prices ‘Rising Rapidly’

Economic progress is dwindling in the eyes of Associated Builders and Contractors (ABC) economists who reported a nearly 10% gain in 2018 construction material prices in June over last year. ABC noted a 9.6% increase in prices compared to 2017, with a 9.8% gain in nonresidential construction, during its analysis of U.S. Bureau of Labor Statistics data released July 11.

Overall construction material prices and nonresidential construction prices increased 0.8% and 0.9%, respectively, month-over-month (MoM). In a press release, ABC Chief Economist Anirban Basu said the latest results were "unfavorable" and could potentially halt certain development projects. Crude petroleum saw the highest year-over-year (YOY) increase by more than 49%, followed by softwood lumber (23.2%) and iron and steel (13.5%). Natural gas was the only material to decline YoY; however, costs of crude petroleum and unprocessed energy materials decreased MoM.

Basu hinted at some similarities between what is occurring now versus what happened directly after the recession in the late-2000s.

"Material prices, for instance, were rising rapidly for much of 2006 and 2007 as the economic expansion that began in 2001 reached its final stages," he said in a statement. "[Wednesday's] data will provide further ammunition for policymakers committed to tightening monetary policy and raising short-term interest rates."

Based on the current readings, Basu predicted construction material prices will only continue to rise—albeit most likely at a slower rate—due in part to the tariffs implemented by the U.S. on goods from leading trading partners, such as China, the European Union and Mexico.

-Andrew Michaels, editorial associate

​For the latest construction credit news, visit NACM's Secured Transaction Services.

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Wednesday, 12 August 2020