Dive Brief:
- Construction material prices rose 1.1% between May and June but are still 2.5% below the June 2015 level, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data released Thursday.
- June marked the fourth consecutive month of increases in construction industry inputs in the Producer Price Index.
- Only three of 11 input prices declined between May and June: iron and steel, nonferrous wire and cable, and natural gas. The remaining eight material prices increased or stayed the same last month.
Dive Insight:
ABC Chief Economist Anirban Basu said that rising overall commodity prices have resulted in higher construction material costs. That price bump "translates into smaller profit margins" for construction companies, he said in a release. "Alternatively, rising costs of construction may be passed along to owners of projects in certain instances," Basu added.
Basu said the ongoing skilled worker shortage — which has pushed up labor costs — combined with higher material prices could result in some developers and owners speeding up their plans for new projects "in an effort to minimize the impact" of rising prices.
That predicted surge in new building activity coincides with an 11% gain in the June Dodge Momentum Index, which forecasts future nonresidential construction starts. Another indicator of future construction activity, the May Architectural Billings Index, rose to its highest level in nearly a year, signaling a possible "new round of growth in the broader construction industry in the months ahead," AIA Chief Economist Kermit Baker said.
Despite June's steep rise in material prices, Basu said he believes the coming months won't see price growth as strong as June. However, he added that construction companies shouldn't count on a sudden decline. Industry experts have warned of steadily increasing construction costs this year. In February, Mortenson's Construction Cost Index report predicted a 3% to 4% rise in project costs in 2016.
