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Construction material prices increased in October

An Associated Builders and Contractors (ABC) analysis of information provided by the Bureau of Labor Statistics shows construction material prices increased 0.5 percent from September to October, according to www.abc.org. On a year-over-year basis, the price of construction materials increased 7.9 percent.

Nonresidential construction material prices increased 0.5 percent from September to October.

"For much of the year, construction materials prices were marching higher," says ABC Chief Economist Anirban Basu. "However, during the late-summer, materials prices began to moderate for a number of reasons, including a slowing global economy and rising production of key inputs in response to higher prices. The expectation has been that the moderation in materials prices would only be temporary given still strong demand for construction inputs in America, which was realized in October.

"While there is anecdotal evidence suggesting that higher materials prices have stalled certain construction projects due to weaker pro-formas, for the most part, demand for construction services has continued to ramp higher," Basu continues. "ABC's Construction Backlog Indicator has recently attained record levels. The Architecture Billings Index also signals strong construction service demand going forward, especially in the southern and western United States. Public construction spending has surged over the past year due in large measure to healthier state and local government finances, as well as ongoing rebuilding from last year's storms and wildfires. Accordingly, there is little reason to expect a dip in demand for construction materials during the months ahead."

However, Basu says slowing global economic expansion could affect materials prices.

"That said, there is at least one scenario under which materials prices could fall from current levels," Basu says. "There is evidence that the synchronized global economic expansion is becoming more uneven as nations such as Turkey and Argentina face growing headwinds. There is also evidence of economic slowing in China, though some of these reports may prove exaggerated. The recent decline in oil prices below $60 per barrel does suggest, however, that the global economy is not growing as smoothly as it had been last year. Should financial markets remain volatile, there could be a general dip in asset prices globally, which would tend to suppress future commodity price and construction materials price increases. Still, the most likely outcome is for ongoing gradual increases in materials prices from quarter to quarter."


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