July Construction Input Prices Improve Yet Remain Worrisome

Construction input prices experienced a modest comeback in July, but results have left some builders unsettled with the year-over-year (YOY) findings. Despite the 0.8% expansion month-over-month (MoM), input prices fell more than half a percent YOY in part by notable declines in natural gas, unprocessed energy materials, crude petroleum and softwood lumber.

In a report on Aug. 9, Associated Builders and Contractors (ABC) Chief Economist Anirban Basu described the price drop as "one of the year's great economic surprises." Although material prices were rising in 2017, ABC states construction firm profit margins halted further increases as companies dedicated more to worker compensation costs.

"While skilled and semi-skilled construction workers remain scarce, materials prices have tended to sag, including in categories impacted by tariffs," Basu said in the report. "The result is that many contractors who had built significant materials price contingencies into their agreements with purchasers of construction services are experiencing lower than anticipated materials costs. All things being equal, that would tend to shift profit margins higher."

Natural gas declined the most MoM by about 9%, while steel mill products, iron and steel, and nonferrous wire and cable dropped minimally.

—Andrew Michaels, editorial associate

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Thursday, 17 October 2019

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