Dive Brief:
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Construction material prices dropped 0.2% between July and August and are down 1.7% from August 2015, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data released Thursday.
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August's dip in prices comes after four months of increases and one month of unchanged results in construction industry inputs in the Producer Price Index.
- Four of 11 input prices declined between July and August: iron and steel, crude petroleum, natural gas and unprocessed energy materials. The remaining seven material prices increased or stayed the same last month.
Dive Insight:
ABC Chief Economist Anirban Basu emphasized the fact that the majority of nonresidential construction inputs with August price declines were in the energy sector. He predicted that rising U.S. interest rates and the strong U.S. dollar will suppress price hikes moving forward, especially related to energy inputs. Although falling energy prices can damage the state and local economies that depend on the sector, they can also have a "neutral to positive" impact on the construction industry's growth by offering companies lower costs, according to Basu.
The overall 0.2% decline in construction material prices was welcome news after a sustained period of rising or unchanged price points. As business costs swell — due largely to the ever-increasing costs of finding and retaining qualified labor — price dips "help to moderate growth in total construction costs, allowing more projects to move forward and industry backlog to remain stable," Basu said in a release.
The ABC's most recent Construction Backlog Indicator found that 2016 first-quarter backlog of nonresidential construction projects slipped 0.8% from the fourth quarter of 2015 while backlog for the largest U.S. contractors hit an all-time CBI high of 12 months. If Basu's predictions are correct, the coming CBI reports from the ABC could show a rise in overall project backlog for the second and third quarters of 2016.
