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Price of Softwood Lumber, Natural Gas Increase By Double-Digit Percentages in September

September brought about an increase in construction input prices in large part due to the rising cost of softwood lumber, which has become 80% more costly than in September 2019. In Associated Builders and Contractors' (ABC) latest analysis of U.S. Bureau of Labor Statistics' data, September 2020's Producer Price Index revealed construction input prices increased 1.6% month over month, with 1.4% of gains in nonresidential construction.

Softwood lumber and natural gas were the only subcategories to see double-digit percentage increases month over month at 27.4% and 12.1%, respectively. Iron and steel increased nearly 3%, followed by a 2.6% increase in prepared asphalt, tar roofing and siding products and 2.1% in nonferrous wire and cable. Only three subcategories saw declines in September, including crude petroleum, steel mill products and unprocessed energy materials.

"Rising materials prices represents yet another risk facing nonresidential contractors going forward," ABC Chief Economist Anirban Basu said in the report. "For months, many contractors have expressed concern that global supply chain disruptions would produce a combination of materials shortages and rising prices. Indeed, many contractors have reported occasional issues procuring necessary inputs to production, further slowing construction service delivery. This has been reflected in ABC's Construction Confidence Index, which showed a mere 23% of contractors expect their profit margins to expand over the next two quarters. But in general, materials prices have not raced higher as feared with the noteworthy exception of softwood lumber."

Yet, there are some signs of hope as winter grows closer, Basu added. A "softening demand for materials" is likely in the coming months, the economist said, which will "help to suppress rapid price increases."

—Andrew Michaels, editorial associate

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Friday, 04 December 2020