Dive Brief:
- Construction input prices decreased 0.9% in May due to declines in energy prices and broader slowing inflation, according to an Associated Builders and Contractors’ analysis of U.S. Bureau of Labor Statistics data released Thursday.
- The drop marks the first decrease in input prices in 2024. However, both overall and nonresidential construction costs remain 2.1% and 2.2% higher, respectively, than a year ago, according to the report.
- “Construction input prices fell for the first time since December and, despite rising somewhat sharply over the first four months of 2024, are up just 2.1% year over year,” said Anirban Basu, ABC chief economist. “Second, the Producer Price Index’s economy wide measure of final demand prices fell in May. This, along with yesterday’s cooler than expected Consumer Price Index data, signals slowing inflation and that the Federal Reserve may begin to cut rates sooner than expected.”
Dive Insight:
Even with year-over-year price increases, project costs on the ground have largely remained stable, said Macrina Wilkins, senior research analyst with the Associated General Contractors of America.
“[The PPI] release shows us that while some prices for construction materials have shown fluctuations, it is not significantly impacting the cost of projects,” said Wilkins. “The bid prices remained unchanged and new nonresidential construction declined 0.6% for the month.”
The biggest drop came from diesel prices, which fell 20% in May, said Wilkins. On the other hand, steel mill products, copper wire and cable showed moderate price increases.
Basu said falling materials prices and potential lower interest rates are welcome developments for the construction industry, especially as optimism around profit margins has reached its lowest level in seven months.
Prices dropped in two of the three energy subcategories last month. For example, crude petroleum prices tumbled 8.7% in May, while unprocessed energy materials decreased 6.6%. Natural gas prices moved 1.7% higher.
