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Lower Construction Input Prices Can’t Shake Weakening Economic Growth

December's construction input prices brought some good news to contractors, as Associated Builders and Contractors (ABC) reports a 1.7% month-over-month (MoM) decline that was most notable in nonresidential construction pricing. Although contractors' concerns aren't completely diminished, ABC Economist Anirban Basu said in the report that the price effect on projects' profit margins was less than expected.

"While that remains a concern, particularly considering the ongoing shortage of skilled construction workers, the fact that input prices have moderated—especially as they rose rapidly in 2018—should be viewed positively from the perspective of contractor earnings performance," Basu stated on Jan. 15. "There are many explanatory factors involved, including a softening global economy. And while a softer global economy is good news from the perspective of inflationary pressures, ultimately, this will result in weaker U.S. economic growth."

Unfortunately, the year-over-year (YOY) input prices remain an issue, up 3.5% compared to December 2017. Inputs to nonresidential construction were recorded at 1.6% MoM last month, with the steepest MoM decline in crude petroleum prices (3.7%). Natural gas increased significantly MoM by more than 64%, followed by unprocessed energy materials at just over 24%. Steel mill products as well as iron and steel prices also increased YOY by 18.5% and 14.8%, respectively.

Basu said in the report he, along with other economists, anticipate weaker economic growth compared to 2018.

"It is conceivable that materials prices will continue to decline, particularly if tariffs imposed on certain items like steel and aluminum are removed," he said.

—Andrew Michaels, editorial associate

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Wednesday, 24 July 2019