An Associated Builders and Contractors analysis of information provided by the Bureau of Labor Statistics shows construction material prices rose 20.6% from June to July, according to www.abc.org. On a year-over-year basis, the price of construction materials increased 23.1%.
Nonresidential construction material prices rose 0.8% from June to July and increased 23.4% compared with one year ago. Softwood lumber prices are up 45% year-over-year though are down 29% from June to July. Iron and steel prices are up 89.2% year-over-year and 7.8% for the month.
ABC Chief Economist Anirban Basu said a rebounding economy, ongoing supply chain disruptions and limited productive capacity have led to rapid price increases, though many economists say the current situation is temporary.
“The good and bad news is that the economy is flush with liquidity,” Basu said. “Injections of money supply by the Federal Reserve, which has yet to indicate when it will begin to moderate its quantitative easing program, have helped create large pools of investable money. A significant fraction of that money is being invested in real estate, which often translates into construction projects. That is consistent with the stable-to-rising backlog observed in recent months as well as ongoing confidence among contractors, reflected in ABC’s Construction Backlog Indicator and Construction Confidence Index. However, that liquidity also serves to help push prices higher.
“One can only conclude that the economy will continue to run hot into 2022 despite the malign impacts of the Delta variant, producing both hefty advances in gross domestic product and unusually elevated inflation,” Basu conitnued. “The fact that steel prices are rising is not only an indication of the recovery transpiring in goods-producing industries like construction and manufacturing, but also of the difficulty global suppliers are having keeping up with demand. That dynamic does not appear poised to change substantially in the very near-term, though there was some evidence of moderating inflation in the most recent Consumer Price Index report. Contractors should assiduously build contingencies into their contracts to protect themselves from additional materials price spikes. Given that construction firm services are in high demand, contractors should have enough negotiating leverage to accomplish that under most circumstances.”