Material prices fall year over year for first time since August 2020

Dive Brief:

  • Construction input prices, or how much it costs to build a given project, fell for the first time in more than 18 months on a year-over-year basis, but were still 39% higher than February 2020, before the COVID-19 pandemic sent supply chains reeling. 
  • Both overall construction prices and nonresidential costs were down 0.9% and 0.6%, respectively, compared to March 2022, according to an Associated Builders and Contractors analysis. That’s the first time they’ve dropped annually since August 2020, said Anirban Basu, ABC chief economist.
  • Still, costs inched up over the last 30 days. Overall construction and nonresidential input prices rose 0.2% and 0.4% in March, respectively, compared to the previous month. “The good news is that the latest producer price index data, which show broad-based declines in both goods and services prices, suggest that the expected 25 basis point interest rate hike at the Federal Reserve’s May meeting will be the last of the cycle,” said Basu. “The bad news is that this data indicates greatly diminished pricing power among wholesalers and others.”

Dive Insight:

Natural gas and unprocessed energy materials registered the largest percentage drops in March, both falling 21.4% and 11.9% compared to February. Crude petroleum prices also fell 10.2%, according to ABC.

However, just five of 19 categories posted price drops in March, while other commodity prices continued to rise. Iron and steel prices jumped 2.9% in March, steel mill products increased 1.2% and concrete products moved up 0.7%, according to the report.

Still, inputs to nonresidential construction remain 39.5% higher since February 2020, according to the report.

“While some cheer the notion that rate increases are set to end soon, the Federal Reserve may want to maintain higher interest rates for longer to ensure that inflation has been suppressed,” said Basu. “This, along with other signs of slowing economic activity, suggest that the possibility of recession remains elevated, though the economic outlook is increasingly uncertain.”

While the overall commodities sectors tracked by ABC posted a slight price increase on a monthly basis, a separate measure dropped, according to the Associated General Contractors of America.

The producer price index for inputs to nonresidential construction for final demand ticked down 0.1% from February to March, as measured by AGC. A 2.3% drop in energy inputs pushed that decrease, according to the release.

Nevertheless, many inputs continued to post double-digit cost increases from a year ago. For example, cement prices jumped 17%, concrete products increased 14.5% and paving mixtures and blocks rose 14.1%.

“With materials costs fluctuating so much month to month, contractors remain wary about committing to projects with unpredictable costs and lead times,” said Ken Simonson, AGC chief economist. “While the inflation in the broader economy is settling back to earth, construction costs keep hitting updrafts.”

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