Construction material prices continue to rise

Forecast calls for continued increase in costs

Construction materials costs rose 0.8 percent in March and are 5.8 percent higher than at the same time one year ago, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics data released today. Nonresidential construction costs increased by 0.9 percent on a monthly basis and are up 5.6 percent year over year, the ABC analysis found.

Overall, the upward pressure on construction materials prices was masked to a certain extent by natural gas, which fell 32.1 percent in March — after rising 23.5 percent in February — and are down nearly 13 percent on an annual basis. But crude petroleum prices grew by 5 percent in March and are up 34 percent year over year, according to ABC.

Steel prices rose 2.5 percent in March and by 6.5 percent for the year, but larger increases are expected as the price of steel to be delivered is increasingly subject to the renegotiation of expiring contracts, according to ABC.

“Ongoing increases in employee compensation strongly suggest that the cost of delivering construction services is set to rise substantially in 2018,” said ABC Chief Economist Anirban Basu.

He added that “there is little evidence to suggest that purchasers of construction services have been significantly discouraged by rising prices in the context of an improving economy,” but overall construction spending “continues to be only moderate, and further cost increases may induce more developers and other purchasers to postpone projects.”

Added Basu: “The hope is that uncertainty emerging from the policymaking environment will quickly abate. Many agree that there are opportunities for the United States to improve its access to foreign markets, but also that the eruption of full-blown trade wars could bring the current economic expansion to a halt. That would not be good for contractors in terms of demand for their services. It also likely would translate into additional significant increases in overall materials costs as tariffs take hold, which presumably would further dampen profit margin growth.”

Categories: Real Estate & Construction