Dive Brief:<\/h3>\n\n- Construction input prices were 1.1% lower than a year ago in April, the second consecutive month that the cost to build a given project decreased compared to the same period in 2022, <\/span><\/span><\/span><\/span><\/span><\/span>according to an Associated Builders and Contractors analysis<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> of government data released today.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n
- For the month, overall construction prices inched up 0.2%, while nonresidential costs gained 0.4%. Still, those relatively minor increases couldn\u2019t overshadow the latest positive takeaway for construction when it comes to material prices: They are generally going in the right direction after the pandemic\u2019s historic inflation rates.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n
- \u201cThis PPI release provides some good news for an industry that has dealt with a nearly 40% increase in construction costs since the start of the COVID-19 pandemic,\u201d said Anirban Basu, chief economist at ABC. \u201cBut inflation remains a pressing issue for the industry and the broader economy.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/li>\n<\/ul>\n
Dive Insight:<\/h3>\n
The <\/span><\/span><\/span><\/span><\/span><\/span>second straight month<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> of annual declines came after construction material prices did nothing but go up for 18 months in a row, according to ABC.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p>\nSome notable construction materials to decline in price over the past year include natural gas, down 64.1%, and softwood lumber, down 38.9%, according to ABC. Meanwhile, unprocessed energy materials tumbled 29.1%, followed by a 20.4% drop in crude petroleum, according to the report.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n![\"-\"](\"https:\/\/essential.construction\/news\/wp-content\/uploads\/sites\/15\/2023\/05\/PPI_Table_Apr.23.jpg\")
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Yet despite that trend, Basu struck a note of caution regarding the recent Consumer Price Index, which jumped 4.9% over the past year in April, well above the Federal Reserve\u2019s 2% target, he said. CPI is a more important indicator for monetary policy and economic sentiment.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nHe also noted that contractors\u2019 bottom lines were also starting to sink despite reduced material prices, because of higher costs in other areas.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cDespite the annual decline in input costs, contractors\u2019 <\/span><\/span><\/span><\/span><\/span><\/span>profit margins are still under pressure<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>,\u201d said Basu. \u201cDue to higher borrowing costs and labor costs and the substantial increase in materials prices over much of 2021 and 2022, the proportion of contractors that expect their profit margins will increase over the next two quarters has slipped in recent months.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nNot down everywhere<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\nSome materials that have dropped in price recently have still posted year-over-year increases, said Ken Simonson, chief economist at the Associated General Contractors of America.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nFor example, over the course of a year, prices jumped 13.7% for cement, 13.3% for electrical switchgear, 13.2% for concrete products and 12.1% for gypsum building products, according to an <\/span><\/span><\/span><\/span><\/span><\/span>AGC report on materials prices<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nThat volatility for many key construction materials is \u201cmaking it difficult for contractors to bid projects that may take years to complete,\u201d said Simonson.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nMeanwhile, an AGC index that measures contractors\u2019 bid prices \u2014\u00a0or what they would charge for a given construction project \u2014\u00a0declined 0.3% in April.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nThat indicates contractors are getting squeezed by rising materials prices at a time when what they charge to build projects is declining, said Simonson.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p><\/div>\n
Dive Insight:<\/h3>\n
The <\/span><\/span><\/span><\/span><\/span><\/span>second straight month<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> of annual declines came after construction material prices did nothing but go up for 18 months in a row, according to ABC.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p>\n Some notable construction materials to decline in price over the past year include natural gas, down 64.1%, and softwood lumber, down 38.9%, according to ABC. Meanwhile, unprocessed energy materials tumbled 29.1%, followed by a 20.4% drop in crude petroleum, according to the report.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Yet despite that trend, Basu struck a note of caution regarding the recent Consumer Price Index, which jumped 4.9% over the past year in April, well above the Federal Reserve\u2019s 2% target, he said. CPI is a more important indicator for monetary policy and economic sentiment.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n He also noted that contractors\u2019 bottom lines were also starting to sink despite reduced material prices, because of higher costs in other areas.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cDespite the annual decline in input costs, contractors\u2019 <\/span><\/span><\/span><\/span><\/span><\/span>profit margins are still under pressure<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>,\u201d said Basu. \u201cDue to higher borrowing costs and labor costs and the substantial increase in materials prices over much of 2021 and 2022, the proportion of contractors that expect their profit margins will increase over the next two quarters has slipped in recent months.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Some materials that have dropped in price recently have still posted year-over-year increases, said Ken Simonson, chief economist at the Associated General Contractors of America.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n For example, over the course of a year, prices jumped 13.7% for cement, 13.3% for electrical switchgear, 13.2% for concrete products and 12.1% for gypsum building products, according to an <\/span><\/span><\/span><\/span><\/span><\/span>AGC report on materials prices<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n That volatility for many key construction materials is \u201cmaking it difficult for contractors to bid projects that may take years to complete,\u201d said Simonson.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Meanwhile, an AGC index that measures contractors\u2019 bid prices \u2014\u00a0or what they would charge for a given construction project \u2014\u00a0declined 0.3% in April.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n That indicates contractors are getting squeezed by rising materials prices at a time when what they charge to build projects is declining, said Simonson.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p><\/div>\n<\/p>\nNot down everywhere<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n