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Construction material prices increased in May

Construction material prices increased 2.2 percent in May, representing the largest increase of construction material prices in 10 years, according to an ABC analysis of the Bureau of Labor Statistics on www.abc.org.

Nonresidential construction input prices increased 2.3 percent for the month and 8.9 percent for the year.

"While rapidly rising construction materials prices partially reflect economic strength, for the most part, today's release should be viewed as bad news," said ABC Chief Economist Anirban Basu. "As economists have been suggesting for many months, inflationary pressures are building. One can observe this in labor markets as well as in the price of gasoline, health care and construction materials."

"The current economic expansion, the second lengthiest in American history, has been built in large measure on persistently low interest rates, which stand to eventually disappear as inflationary pressures become increasingly apparent. Real estate and construction cycles are especially vulnerable to increases in borrowing costs."

Basu says all eyes are on the price of metals, which are increasing. Iron and steel prices are up almost 13 percent and steel mill product prices are up almost 11 percent.

"These dynamics are fraught with unforeseeable consequences," Basu said. "For instance, will the rise in materials prices induce diminishing demand for construction services? Will more expensive materials prices squeeze contractor margins? Moreover, if the general increase in various prices triggers rapidly rising interest rates, it would presumably truncate the ongoing economic expansion, now in its tenth year. All of this suggests contractors should be rooting vigorously against full-blown trade wars, which would only serve to exacerbate already observable, problematic trends."


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