Dive Brief:

• Construction input prices inched up marginally in August but have eased over the past year, according to an analysis by Associated Builders and Contractors, just as the Federal Reserve prepares to decide whether to cut interest rates next week.
• Overall construction costs ticked up 0.1% in August, according to ABC’s analysis of U.S. Bureau of Labor Statistics released Thursday. Over the past year though, inputs to construction decreased 0.7%, while nonresidential costs ticked down 0.9%.
• “Construction input prices are now down almost a full percentage point over the past year,” said Anirban Basu, ABC chief economist. “This is a welcome development for contractors.”

Dive Insight:

Ongoing economic uncertainty has led many contractors to expect profit margins to shrink over the next six months, according to ABC’s Construction Confidence Index.

After all, construction costs still sit close to 40% higher than in February 2020 before the onset of the global pandemic.

But lower material prices compared to last year, combined with the widely anticipated reduction in interest rates at the Federal Reserve’s next meeting, are expected to provide some reprieve for contractors in the coming months, said Basu.

“Moderating materials price escalation, along with easing labor constraints and the near certainty that the Federal Reserve will begin lowering interest rates at its next meeting, should provide some relief to contractors over the next several months,” Basu said. 

Prices in all three energy subcategories decreased significantly in August, according to the U.S. Census Bureau data. Natural gas prices dropped by 29.8% in August, while unprocessed energy materials and crude petroleum prices declined by 7.5% and 4.2%, respectively.

That’s a positive trend for contractors, as energy cost growth last month had caused overall construction inputs to jump despite a stabilization across most other construction materials.

For example, prices for construction materials such as brick, structural clay tile, construction machinery and switchgear posted no change from the previous month, according to the data. Other materials, including concrete, gypsum products and hot rolled steel bars posted slight price drops over the past 30 days, said Macrina Wilkins, senior research analyst with the Associated General Contractors of America.

“Over the past year, diesel fuel, concrete pipe, steel mill products, copper and fabricated structural metal prices showed the most significant changes,” said Wilkins in an email to Construction Dive. “[That reflects] some volatility within an otherwise relatively stable market.”