January material prices up 1.1%

Dive Brief:

January construction material prices reversed December's slight decline with a 1.1% month-over-month increase, according to an Associated Builders and Contractors (ABC) analysis of Bureau of Labor Statistics data. Year over year, material prices were up 4.9%. The materials with the biggest increases from December to January were crude petroleum, up 11.6%; iron and steel, 2.7%; nonferrous wire and cable,1.7%; and plumbing fixtures and fittings, 1.0%. Natural gas prices had the biggest month-over-month decline (-13.1%).
Nonresidential construction material prices rose 4.7% from January 2017. Over the 12 months, the materials that saw the largest price gains were crude petroleum, 30.3%; softwood lumber, 14.5%; nonferrous wire and cable, 8.3%; and iron and steel, 6.4%. Natural gas had the biggest year-over-year decline (-30.9%).
Driven by strong domestic and international economies, investor confidence, robust construction backlogs and import price increases on the back of a weaker dollar, construction material prices should grow by 5% this year, according to ABC chief economist Anirban Basu. However, the pace of material price increases, Basu said, should be constrained by the labor shortage as contractors struggle to take on new projects.

Dive Insight:

In ABC's report last month, Basu noted that the dip in material prices was likely an anomaly and that inflationary pressures would soon impact material prices — and it looks like that prediction has come true. Contractors, the association continues to warn, need to be on the lookout for price fluctuations and should consider those changes when preparing bids.

When material prices are on an upswing, contractors are sometimes hesitant to pass them on to the customer, especially during the bidding process. Some construction companies are willing to reduce their markups in order to remain competitive. The tighter profit margins mean that the winning contractor has to really watch the project budget, but also could result in the company not being able to increase wages to hire the skilled workforce it needs. According to the Hays U.S. 2018 Salary Guide, offering higher levels of compensation is the primary way companies attract and retain employees.

Construction industry employers continue to grapple with finding enough qualified workers as baby boomers retire and millennials choose careers in other fields. The industry also saw a mass exodus of workers during the Great Recession, and many skilled tradesmen decided not to return when the recovery began.

As part of his $1.5 trillion infrastructure plan, President Donald Trump addressed the construction workforce problem with proposals including expansion of the Pell Grant education program, reformation of the Carl D. Perkins Career and Technical Education program, and developing employer-college student relationships through the Federal Work Study program. However, these measures are part of a plan to which Congress must agree, a process that will certainly be no slam dunk for the administration.