- New data from the federal government sheds light on what most U.S. contractors already know: Materials prices are skyrocketing. Nonresidential construction input prices increased 23.9% in May compared to the previous year, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics data released Tuesday. These input prices are 4.8% higher than in April, ABC said in a release.
- In addition, all three energy subcategories registered significant year-over-year price increases. Crude petroleum has risen 187%, while the prices of unprocessed energy materials and natural gas have increased 100% and 90%, respectively. The price of softwood lumber has expanded 154% over the past year.
- The elevated prices will not decrease anytime soon, said ABC chief economist Anirban Basu. "While global supply chains should become more orderly over time as the pandemic fades into memory, global demand for inputs will be overwhelming as the global economy comes back to life."
Basu said the surge in prices is probably temporary as suppliers work to boost capacity and bolster output, a dynamic that eventually results in a downward shift in prices.
"Operations at input producers should also become smoother over time as staff is brought back and standard operating procedures are reestablished," he said.
|Plumbing fixtures and fittings||2.2%|
|Prepared asphalt, tar roofing and siding products||12.6%|
|Fabricated structural metal products||18.3%|
|Nonferrous wire and cable||31.4%|
|Iron and steel||62.8%|
|Steel mill products||75.6%|
|Unprocessed energy materials||100.1%|
Nevertheless, some of the inflationary pressure contractors and others are experiencing may not be over soon, he said, and inflation and interest rates may not be as low during the decade ahead as they were during the decade leading up to the pandemic.
"There are some things that have changed during the pandemic and will not shift back," said Basu. "For instance, money supply around the world has expanded significantly. Governments have been running large deficits."
Commercial and residential builders have struggled with the higher materials prices since this time last year. The National Association of Home Builders reported that lumber costs are adding an average of $35,872 to new single family home prices. Those prices have also added $12,966 to the value of an average new multifamily home. As those are typically built to rent, that in turn is adding $119 a month in rent to new apartments.
Despite the skyrocketing materials prices, contractors expect sales to rise over the next six months, according to ABC’s Construction Confidence Index, also released on Tuesday. This means project owners who delayed the onset of construction for a few months in order to secure lower bids may come to regret that decision, Basu said.