Construction input prices rise in August

Construction input prices edged upward by 0.6% in August over the previous month, according to Associated Builders and Contractors’ (ABC) analysis of the latest U.S. Bureau of Labor Statistics’ Producer Price Index data. 

Nonresidential construction input prices increased 0.3% for the month.

Softwood lumber input prices increased by 16% month-over-month and are up 45% compared to August 2019.

A handful of categories experienced price declines in August, the largest of which were in steel mill products and prepared asphalt, both down -1.7%, ABC reported.

“Inflation has been coming in a bit hotter than anticipated, which gives contractors cause for concern,” said ABC Chief Economist Anirban Basu. 

Basu says other challenges facing the construction industry include inducing workers to return to job sites and reduced demand for nonresidential construction services due to compromised commercial real estate conditions, along with the weak state and local government finances.

Recent data stand for the proposition that higher inflation and interest rates also represent future risk factors for contractors, according to ABC.

“A number of factors have triggered a pickup in inflation,” said Basu. “One is a weakening U.S. dollar, resulting from the lingering pandemic, as well as Federal Reserve policy and pronouncements. The Federal Reserve’s injections of liquidity into financial systems are also consistent with stepped-up inflation expectations.”

Basu notes that the federal government will run an estimated $3.3 trillion budget deficit during the current fiscal year, which would also tend toward more inflationary pressures and eventual higher interest rates. 

“Finally, the economic recovery to date has been robust, with the U.S. economy adding millions of jobs and recently driving unemployment well below 10%, meaningfully ahead of schedule based on consensus forecasts,” Basu added.

More information about the latest Producer Price Index can be found here.

Associated Builders and Contractors is a national construction industry trade association representing more than 21,000 members.