Construction materials prices fall in December, a welcome turn for contractors

Construction materials prices fell by 1.7 percent in December from the previous month, a good sign for contractors worried that rising labor costs and higher input prices could erode their profits, according to a trade group’s analysis.

Although construction-materials prices were 3.5 percent higher in December than they were a year before, a month-to-month drop from November is a welcome development after materials costs rose rapidly for much of 2018, according to an analysis of U.S. Bureau of Labor Statistics data by the Associated Builders and Contractors. Nonresidential-construction prices, meanwhile, fell by 1.6 percent in December but were 4.1 percent higher year-over-year.

“Today’s data release should be viewed as good news for contractors,” said Anirban Basu, ABC chief economist. “For months, there has been growing concern that the combination of rising wages and construction input prices would steadily hammer away at profit margins. While that remains a concern, particularly considering the ongoing shortage of skilled construction workers, the fact that input prices have moderated—especially as they rose rapidly in 2018—should be viewed positively from the perspective of contractor earnings performance.”

ABC’s analysis considers the cost of 11 materials commonly used in the construction industry. Crude petroleum showed the largest drop, going down by 3.7 percent month-to-month and by 11.1 percent year-over-year. Input prices managed to decrease on average even though there was a “massive” 64.3 percent increase seen in the price of natural gas, according to ABC.

One possible contributor to the decrease is the softening global economy, which has been easing inflationary pressures. Although economists are unsure when the next economic downturn will hit — be it later this year, or in 2020 or 2021 — most agree economic growth will slow in 2019, Basu said.

Basu said materials prices could fall even further if tariffs on common goods were lifted.

“It is conceivable that materials prices will continue to decline, particularly if tariffs imposed on certain items like steel and aluminum are removed,” said Basu. “Iron and steel prices are up nearly 15 percent on a year-over-year basis, and steel mill product prices are up nearly 19 percent. On the other hand, a recent decline in the value of the U.S. dollar may translate into firmer materials prices over the very near term.”