An Associated Builders and Contractors analysis of information provided by the Bureau of Labor Statistics shows construction material prices decreased 0.6% from August to September, according to www.abc.org. On a year-over-year basis, the price of construction materials decreased 1.7%.
Nonresidential construction material prices decreased 0.7% from August to September and 1.4% compared with one year ago.
“A weakening global economy, a sturdy U.S. dollar and revolutions in technology across much of the energy spectrum continue to contribute to deflationary price pressures in construction materials prices,” says ABC Chief Economist Anirban Basu. “The expectation is that materials prices will continue to remain weak absent a major geopolitical event. Even the drone strike on Saudi Arabia’s oil facilities, which caused oil prices to spike briefly, was insufficient to place meaningful upward pressure on prices.”
Basu says the report is positive for contractors for various reasons.
“First, contractors continue to wrestle with growing human capital shortfalls, which has helped to bulk up compensation costs, including rising overtime expenditures,” Basu says. “All things being equal, rising wage pressures truncate profit margins. Stable materials prices help to countervail that to an extent. Second, the lack of apparent inflationary pressures makes it more likely that interest rates will remain low. Anything that keeps the cost of capital low for developers and other project owners is generally positive for construction spending.
“Third, there is growing concern that the overall cost increase associated with the delivery of construction services has resulted in a growing number of projects being delayed or cancelled,” Basu continues. “Much of this has to do with the lack of skilled workers, which has subcontractors scrambling for capacity. Today’s release, which shows that many materials prices are decreasing, helps to abate the pace at which construction service delivery costs are rising. That will help extend the current construction spending cycle.”