The following is an ABC Construction Economic Update:
Prices for inputs to construction fell 0.5 percent in August but are 8.1 percent higher than at the same time one year ago, according to an Associated Builders and Contractors analysis of Bureau of Labor Statistics data released today. Nonresidential construction input prices fell 0.4 percent in August but are up 8.3 percent year-over-year. Softwood lumber prices plummeted 9.6 percent in August yet are up 5 percent on a yearly basis (down from a 19.5 percent increase year-over-year in July).
“Stakeholders will be tempted to look upon this month’s inputs to the construction Producer Price Index report as evidence that the cycle of rapidly rising prices is nearing an end,” said ABC Chief Economist Anirban Basu. “Prices of key inputs have been high for quite some time, which would tend to induce a larger supply of these items and, in turn, moderate prices.
“Some may also conclude that ongoing progress in trade negotiations with nations including Mexico and Canada has helped to moderate input prices. Still others might point to growing economic turmoil in nations like Turkey and Argentina. Economists would also note the likely impact of a strong U.S. dollar on import and commodity prices. While all of these are potential explanations, another possibility is that the August data are largely statistical aberrations. Metal prices continue to move higher on a monthly basis, with recently enacted tariffs representing a likely explanation.
“Softwood lumber, the subject of an ongoing trade dispute with the Canadians, experienced a significant dip in price on a monthly basis,” said Basu. “The price of softwood may have fallen in response to a weakening single-family residential construction market, as home builders have been wrestling with a combination of labor shortages, higher land prices and weakening demand due to higher mortgage rates.
“In the final analysis, the falling input prices trend likely won’t continue,” said Basu. “The economy is still strong, and ABC’s Construction Backlog Indicator remains elevated in both public and private construction segments. Inflation expectations have shifted, with purchasers of construction services now anticipating price increases and therefore more willing to accommodate them. Moreover, issues related to tariffs and trade wars persist. Accordingly, estimators and construction companies continue to consider the likelihood of additional input price increases for the balance of 2018 and into 2019.”
ABC's Construction Economic Update covers the latest commercial and industrial construction economic news. Delivered electronically, it provides an analysis of the monthly economic indices released by the federal government, including construction spending, employment, the producer price index and the quarterly gross domestic product.