Purchasers of construction materials may face challenges in the coming years as prices continue to rise, a leading construction economist reports.
According to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data, construction input prices rose 1.3 percent in January. Nonresidential construction input prices also increased 1.1 percent for the month.
Overall construction input prices are 4.9 percent higher than a year ago, which is the smallest annual increase since January 2021. Nonresidential construction input prices are also up 4.9 percent since January 2022.
“Recent employment and retail sales reports indicate that the economy is not slowing nearly as quickly as predicted,” said ABC Chief Economist Anirban Basu. “That is the good news. The bad news is that the economy remains overheated, a phenomenon neatly reflected in the January PPI data, which indicated that construction input price gains accelerated on a monthly basis. For instance, construction machinery and equipment prices expanded 3.4 percent in January and are up more than 12 percent during the past year.
“The implication is that the Federal Reserve will maintain higher interest rates longer. Ironically, it is the current strength of the economy that makes a recession more likely sometime during the next 12 months. At some point, higher interest rates will meaningfully affect economic activity. With industry backlog high, according to ABC’s Construction Backlog Indicator, many nonresidential contractors will feel little to no effect from higher interest rates in 2023. But in certain construction segments and locations, these dynamics could make the next two years more challenging.”