ABC: Construction material price drop 'the calm before the storm'
Construction material prices fell 0.5% between October and November, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data released Wednesday. However, prices year-over-year were up 0.5%.
November marked the steepest decline in construction industry inputs to the Producer Price Index since February.
- Six of 11 input category prices dropped between October and November, with the most severe drops in crude petroleum (-11.6%) and unprocessed energy materials (-5.0%). However, those categories also saw strong year-over-year price gains. Prices for the remaining five material sectors rose last month.
ABC Chief Economist Anirban Basu cautioned that the recent easing in material prices might be "the calm before the storm," as he expects energy prices to continue rising in the near future, cutting into contractors' bottom lines.
Although a strengthening U.S. economy is generally positive for the construction industry, it can also force firms to raise wages to keep pace. With a series of Federal Reserve interest rate increases on the horizon — the first of which came Wednesday — combined with higher wages and building costs, Basu said contractors should be "extremely careful in bidding on projects."
This looming rise in overall construction costs was one of the factors behind the ABC's prediction of a slowdown in nonresidential construction growth next year. The ABC's Contractor's Construction Confidence report in October found that industry expectations were down from the previous mark in April, but companies said they were still experiencing growth.
Dodge Data & Analytics Chief Economist Robert Murray also predicted a slight slowdown in the construction industry, but not until 2018. On the bright side, Murray said the slow nature of the recovery during the last few years means the industry is unlikely to experience a major crash.
- Associated Builders and Contractors Construction Input Prices Plummet in November