The Daily Dig
Construction materials prices barely moved in July, but the calm may not last. Overall construction input prices rose 0.1% compared to June, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics Producer Price Index data released August 13. Nonresidential construction input prices matched that pace, also up 0.1% for the month.
Energy prices did most of the work keeping that number flat. Crude petroleum prices fell 11.9% and unprocessed energy materials dropped 7.4% in July. Natural gas moved the opposite direction, climbing 10.4%. Two of the three energy subcategories ABC tracks posted declines early in the month, which lines up with ABC's tame overall reading for July.
That early dip in fuel prices did not hold. ABC Chief Economist Anirban Basu said diesel fuel prices jumped more than 50 cents per gallon between the week used for the index and the end of July. Basu also pointed to a subsequent rebound in oil prices, along with continued increases in lumber and iron and steel, as reasons to expect materials costs to keep climbing in the months ahead.
The annual numbers have not moved much either way. Construction input prices remain 7.4% higher than a year ago, and nonresidential input prices are up 7.2% over the same period. Basu noted materials prices are still running above 7% annually. Even so, contractors on net expect their profit margins to widen over the next six months, based on ABC's Construction Confidence Index.
Snapshot:
Data Source: Associated Builders and Contractors, analysis of U.S. Bureau of Labor Statistics Producer Price Index
Release Date: August 13
Monthly Change, Overall Construction Inputs: +0.1% (July vs. June)
Monthly Change, Nonresidential Construction Inputs: +0.1% (July vs. June)
Year Over Year Change, Overall Construction Inputs: +7.4%
Year Over Year Change, Nonresidential Construction Inputs: +7.2%
Crude Petroleum, Monthly Change: -11.9%
Unprocessed Energy Materials, Monthly Change: -7.4%
Natural Gas, Monthly Change: +10.4%
Diesel Fuel: Up more than 50 cents per gallon between index measurement week and end of July
Materials Trending Up: Lumber, iron and steel
Contractor Sentiment: Net expectation of expanding profit margins over next six months (ABC Construction Confidence Index)
Source Attribution: Anirban Basu, ABC Chief Economist
TheJobWalk Thoughts
That flat July reading is already outdated. Diesel jumped more than 50 cents a gallon after the index snapshot was taken, and oil prices have rebounded since. If that pattern holds, fuel-heavy line items such as hauling, equipment operation, and deliveries could be tracking above what this report shows. Contractors pricing new work off last month's number alone should build in some cushion.
Lumber and steel continuing to climb is the bigger flag for subs holding material commitments on multi-month projects. Procurement teams should revisit escalation clauses and contingency lines now, before the next pricing cycle locks in higher numbers.
The margin outlook is worth watching closely. Contractors expecting wider margins even as materials inflation holds above 7% points to some combination of pricing power, strong backlog quality, or better cost control. Which factor is driving that confidence will shape how aggressive GCs and subs get in upcoming bid rooms.
Courtesy of Associated Builders & Contractors
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