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By Anirban Basu
September 13, 2017
Construction Input Prices Higher
According to today’s release from the Bureau of Labor Statistics, construction input prices rose 0.6 percent in August and are up 3.7 percent on a year-over-year basis. Nonresidential input prices behaved similarly to overall industry dynamics, with prices rising 0.6 percent for the month and 3.5 percent for the year.
The fact that materials prices are rising should come as little surprise. If one merely closed their eyes and considered what ought to be happening with respect to materials prices, one would expect them to be steadily marching higher. After all, the global economic recovery is an increasingly synchronized one.
China is on pace to meet growth expectations this year. Europe, Japan, Brazil, Russia and other nations are experiencing meaningfully better recoveries this year relative to 2016. While some societies like Great Britain and India have stumbled a bit lately due to a myriad of factors, the broader story is one of more rapid global economic growth, driven in large measure by a low interest rate, post-austerity policy environment.
With global inflation remaining well-behaved for the most part, major central banks will continue to support accommodative monetary policy. That has many implications, including for global stock prices, which have performed well in 2017. The associated wealth effects help drive economic growth, which in turn triggers demand for construction materials. These factors help explain the nearly 10 percent increase in iron and steel prices over the past year, the 7 percent rise in steel mill prices, and the 15 percent increase in the price of crude petroleum. Softwood lumber prices have also risen substantially of late, but that may be as much a reflection of recent U.S. trade policies as it is of broader economic forces.
The upshot is that while surging construction materials prices are unlikely over the near-term, so too are large declines. While global economic performance has improved, the worldwide economy continues to fall short of historic rates of growth. Moreover, to secure market share, many producers, whether of oil, natural gas or other commodities, continue to enlarge output. That helps keep a lid on prices.
Among the exceptions, of course, are those communities impacted by Hurricanes Irma and Harvey. Already, construction materials in these areas are rising rapidly as homeowners and others begin a lengthy rebuilding process. The pace of recovery will be slowed by a number of factors in these communities, including shifting views regarding the wisdom of development in flood plains, rising insurance costs, and a greater appreciation for the need to limit the prevalence of impervious surfaces. Note that nonresidential building construction costs in the South experienced 0.3 percent monthly expansion, and this data preceded Irma and Harvey.
1-Month % Change
12-Month % Change
New nonresidential building construction
Inputs to Construction
Inputs to Nonresidential Construction
Plumbing Fixtures and Fittings
Fabricated Structural Metal Products
Iron and Steel
Steel Mill Products
Nonferrous Wire and Cable
Prepared Asphalt, Tar Roofing & Siding Products
Unprocessed Energy Materials
Source: U.S. Bureau of Labor Statistics
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