An Associated Builders and Contractors analysis of information provided by the Bureau of Labor Statistics shows construction material prices fell 0.6% from January to February, according to www.abc.org. On a year-over-year basis, the price of construction materials increased 0.4%.
Nonresidential construction material prices fell 0.6% from January to February and increased 0.3% compared with one year ago.
“If concerns regarding rising materials prices had been subdued, they are virtually nonexistent now,” says ABC Chief Economist Anirban Basu. “While there may be anecdotal shortages of certain inputs as the global supply chain buckles, in the aggregate, materials prices are set to decline. The global economy is either in or approaching a period of recession, which is helping to drive down the price of oil, natural gas and other key inputs. With a growing number of companies temporarily shuttering factories, demand for other key inputs like steel will also be suppressed.
“Normally, falling materials prices might be considered good news,” Basu continues. “But in the context of demand shocks and supply disruptions, there can be too much of a good thing, and that is the situation today. The recession in the U.S. is likely to be short and vicious, with certain industries like travel and hospitality hammered and financial markets in disarray. There is already some evidence that certain credit markets are seizing up, which is never good for construction.”
However, Basu believes the economy will bounce back quickly once it starts to recover.
“That said, the recovery from the current crisis is likely to be rapid once it begins,” Basu says. “With considerable stimulus likely on the way, low interest rates and the need to rebuild inventories at some point in the future, the broader economy and financial markets will one day move aggressively in a better direction. Unfortunately, that positive adjustment could be a few months away, and in the meantime, a significant volume of construction projects are likely to be put on hold, placing additional downward pressure on construction input prices.”
