Monthly construction input prices continue to rise

Construction input prices continued to increase in December following a year of rising materials costs due in large part to effects of the global pandemic.

Construction input prices increased 1.8% in December 2020 compared to the previous month, according to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index data. 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.”

Basu added, “This dynamic is already observable, for example, in the prices of softwood lumber. 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.”

Earlier in the year it was reported that lumber prices had increased 134% year over year, adding around $14,000 to the average cost of building a new home, according to a calculation by the National Association of Home Builders (NAHB).

Most of that cost is passed from the builder to the consumer, Robert Dietz, chief economist for the NAHB reported. The median price tag for new homes sold in July 2020 was $330,600, up $22,300 from July 2019, according to the U.S. Census Bureau.