Construction prices moderate as energy costs slip
Construction input prices rose for the fourth consecutive month in March, increasing by 0.3 percent on a monthly basis and 4.4 percent on a yearly basis, according to analysis of U.S. Bureau of Labor Statistics data by Associated Builders and Contractors.
Nonresidential construction input prices performed similarly, increasing by 0.4 percent for the month and 4.4 percent for the year.
Energy-related inputs experienced a sharp decline in prices for the month, with natural gas prices decreasing by 30 percent and crude petroleum prices falling by 10.8 percent. That said, those two inputs have increased by 51.7 percent and 40.3 percent on a year-over-year basis, respectively.
The pace of construction material price increases slowed in March. After beginning the year with impressive increases, a number of factors contributed to produce less aggressive price expansion, including perhaps declining estimates of U.S. economic growth in 2017. Available data suggests first-quarter U.S. GDP will expand at around 1 percent. Earlier this year, there were expectations GDP would expand well above 2 percent during the year’s initial three months.
With energy prices moderating, it is quite possible that cost increases will remain moderate. In fact, it is conceivable oil prices and other energy prices will decline from current levels. Additionally, speculation that a large-scale infrastructure package may be placed on the back burner also has diminished predicted demand for construction materials in the near term.
The upshot is contractors should remain focused on rising labor compensation costs. At this time, material prices do not appear to be susceptible to large-scale increases. This, of course, could change with a major geopolitical event, but for now, the expectations are benign.
Anirban Basu is chief economist with Associated Builders and Contractors.