Monthly construction input prices Increase in December, says ABC

Construction input prices increased 1.8% in December 2020 compared to the previous month, according to an Associated Builders and Contractors (ABC) analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices rose 2.1% for the month.

Construction input prices expanded 2.7% between December 2019 and December 2020. Nonresidential construction input prices experienced a 2.4% increase during that period. The largest monthly increase in materials prices was registered in crude petroleum, up 17.5% for the month, followed by softwood lumber, which rose 12.2%. The largest decrease was in the price of natural gas, which fell 9.4%.

“A growing number of nonresidential contractors are expressing concern regarding a spike in materials prices expected later this year,” said ABC Chief Economist Anirban Basu. “They are right to be concerned. After a period of low commodity prices and truncated supply, the global economy will eventually enter a post-pandemic world, fueling demand for materials and potentially driving prices higher. According to ABC’s Construction Confidence Index, contractors expect profit margins to decrease over the next six months despite general optimism regarding sales.

“This dynamic is already observable, for example, in the prices of softwood lumber,” said Basu. “As America’s single-family housing construction boom continues, many builders are ordering softwood lumber. With suppliers collectively lacking the near-term capacity to easily fill these orders, prices were spiking for much of 2020. Similar conditions may influence other commodities later this year as global growth accelerates. This means that contractors need to think long and hard about the existence and structure of escalation clauses as they negotiate future work.