Construction costs rise 0.5% in October on higher petroleum prices

ConDig (10-Oct-18).  US construction inputs continued to post gains in October and rose 0.5% from the month prior as surging petroleum costs offset a drop in metal and a lumber prices, according to Associated Builders and Contractors (ABC) analysis of US Bureau of Labor Statistics data.

Crude petroleum prices continued to increase in October, rising 7.5% since September and 49.7% on a year-over-year basis. The cost of plumbing and fixtures increased 0.4% in October compared with the month prior and fabricated structural metal products rose 0.7%.

Key construction materials like iron and steel and softwood lumber, which have been subject to increasing trade tensions, actually dipped 0.5% and 10.3% respectively in October. But iron and steel was up 13.9% on the year-ago period. It comes as US tariffs imposed on foreign steel and aluminum remain in place despite new trade agreements being signed with the Mexico, South Korea and Canada.

“For much of the year, construction materials prices were marching higher,” said ABC chief economist Anirban Basu.

“However, during the late-summer, materials prices began to moderate for a number of reasons, including a slowing global economy and rising production of key inputs in response to higher prices. The expectation has been that the moderation in materials prices would only be temporary given still strong demand for construction inputs in America, which was realized in October.”

He added that while there is anecdotal evidence suggesting that higher material prices have stalled certain construction projects due to weaker pro-formas, demand for construction services has continued to ramp higher for the most part.

It comes as public construction spending has surged over the past year, driven largely by healthier state and local government finances as well as ongoing rebuilding from last year’s storms and wildfires.

Overall, 7.9% construction inputs were up 7.9% on the year-ago period.

Prices for nonresidential construction inputs also increased 0.5% compared with the month prior and are up by more than 8% from a year-ago.

The Associated General Contractors of America’s (AGC) said in March that the roll out of US import tariffs on steel and aluminum could result in the loss of 30,000 jobs in the construction industry as contractors will be forced to absorb increased costs.

A survey the association released in August found that 80% of respondents reported difficulty filling hourly craft worker positions. As a result, 62% of firms report they are paying higher salaries to attract and retain workers.

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