Construction material prices rise in July

An Associated Builders and Contractors analysis of information provided by the Bureau of Labor Statistics shows construction material prices rose 1.9% from June to July, according to The Association of Builders and Contractors. On a year-over-year basis, the price of construction materials decreased 2.4%.

Nonresidential construction material prices rose 1.8% from June to July and decreased 2.5% compared with one year ago.

“For many contractors, lack of demand for their services has emerged as the leading source of concern due to the COVID-19 pandemic, followed closely behind by a fear of inflation and a potential increase in materials prices,” said ABC Chief Economist Anirban Basu. “June’s PPI data indicate that they are right to be concerned.

“With global supply chains buckling and trade tensions elevated, materials prices are more likely to ratchet higher, even in the context of a global economy that will shrink markedly this year,” Basu continued. “While the recent rise in energy prices receives much of the attention, the price of softwood lumber is up nearly 19% over the past 12 months and was up 11% in June itself.”

Basu said weak demand and rising prices could significantly affect nonresidential contractor profit margins.

“Inflation is not problematic at the moment, but that could change over the next year or two,” Basu said. “Central banks around the world have been increasing money supply, which could ultimately trigger faster price increases as economic activity firms. The combination of weak demand for construction services and rising input prices would be potentially devastating for nonresidential contractor profit margins, which remain an area of concern, according to ABC’s most recent Construction Confidence Index. It would also be bad for the broader economy, which has benefited from the nonresidential construction sector’s relative stability in recent months.”