Construction input prices rise 2.6% in February, says ABC

Construction input prices increased 2.6% in February compared to the previous month, according to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices rose 2.5% for the month.

Construction input prices are up 24.4% from a year ago, while nonresidential construction input prices are up 25.1%. Input prices for natural gas and unprocessed energy materials increased for the month, rising 65.1% and 32.3%, respectively. Crude petroleum prices increased 13.7% in February. All three energy subcategories are up significantly on a year-over-year basis.

“It will get worse before it gets better,” said ABC Chief Economist Anirban Basu. “Not only has Russia’s assault on democratic Ukraine created supply challenges in a number of categories, including oil and natural gas, but the reemergence of COVID-19 in parts of Asia and Europe is also poised to produce additional impacts. While many still expect commodity prices to decline later this year, the wait has been meaningfully extended by geopolitical conflicts and ongoing COVID-19 lockdowns.

PPI Graph — Producer Price Index Percent Change

“For contractors, this has the potential to put even more downward pressure on margins,” said Basu. “It is likely that, as bid prices continue to soar, more project owners will choose to delay project starts. The current state of affairs also creates complications for public agencies considering when to start large-scale infrastructure projects. It is a challenging time to begin such projects, given the workforce shortages that remain and materials price inflation. Undoubtedly, some public administrators will decide to extend planning time, delaying project start dates.

“Remarkably, many projects to date have continued to move forward,” said Basu. “Construction backlog, as measured by ABC’s Construction Backlog Indicator, has remained stable for several months in the wake of rapidly rising materials prices. It remains to be seen whether this stability can prove resilient in the face of additional, severe supply challenges.”

The easing of supply chain snags for some product categories, and the dispensing with global COVID measures, have returned the North American construction sector to a sense of normal. However, that return is proving to be complicated, with the construction industry remaining exceptionally busy at a time when labor and materials cost inflation continues to put pricing pressure on projects, leading to caution in anticipation of a possible downturn. That’s the prognosis of JLL’s just-released 2023 U.S. and Canada Construction Outlook.

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