Construction Material Costs See First Year-Over-Year Drip in 18 Months

Construction prices are lower today than they were a year ago, a little bright spot for the industry, a new Associated Builders and Contractors analysis found.

Construction and nonresidential construction inputs saw 0.9% and 0.6% decreases, respectively, the first year-over-year decrease in more than 18 months, according to ABC. Building costs are still 39.5% higher than they were in the month before the pandemic, Construction Dive reported.

Falling costs were fueled by energy price drop-offs from February to March, like natural gas, which saw a 21.4% decrease, crude petroleum saw a 10.2% decrease and “unprocessed energy materials” saw an 11.9% decrease, according to the analysis.

ABC Chief Economist Anirban Basu said that the uncertainty in interest rate increases might come to an end with a rate hike in May potentially marking the end of the cycle, but that might not be the end of the industry’s pain.

“The bad news is that this data indicates greatly diminished pricing power among wholesalers and others,” Basu said in a statement. “While some will cheer the notion that rate increases are set to end soon, the Federal Reserve may want to maintain higher interest rates for longer to ensure that inflation has been suppressed. This, along with other signs of slowing economic activity, suggests that the possibility of recession remains elevated, though the economic outlook is increasingly uncertain.”

The industry is still seeing some double-digit increases for certain products, including concrete, which is up 14.5% from a year ago, construction machinery and equipment at 11.8% and industrial control equipment at 11.5%.

Costs have been fluctuating, however. In January, prices rose after one of the biggest decreases in more than two years in December. Although the increase was the smallest since January 2021, at 4.9% year-over-year, the fluctuation continues to worry many contractors.

“With materials costs fluctuating so much month to month, contractors remain wary about committing to projects with unpredictable costs and lead times,” Associated General Contractors of America Chief Economist Ken Simonson told Construction Dive.

Uncertainty over certain projects has left some contractors having to make hard staffing decisions. Last month, the Bureau of Labor Statistics reported a 49% drop in job openings from December to January and a 37% drop from the year before.