Construction Input Prices Are up 21% From a Year Ago, Says Associated Builders and Contractors

    Construction input prices have increased dramatically since this time last year, according to an analysis of Labor Department data by the trade group Associated Builders and Contractors. More specifically, construction input prices are up 21.4%, while nonresidential construction input prices are up 21.9%.

    Input prices are the costs directly incurred by the creation of a good or service, such as direct materials and labor. The increases occurred in 10 of 11 subcategories in May. The largest were in natural gas (+39.7%) and unprocessed energy materials (+16.3%).

    “Federal Reserve policymakers will continue to aggressively combat inflationary pressures,” Basu said. “But what the Federal Reserve most directly affects is demand for goods and services, not supply. By tightening monetary policy and raising interest rates, the Federal Reserve will suppress demand over the rest of the year. Eventually, suppliers will respond to diminished demand. This dynamic will quite likely drive the economy into recession either later this year or at some point in 2023.

    “Based on the historical lag between the performance of the economy and nonresidential construction spending, more difficult times could be ahead for contractors in 2024 or 2025,” said Basu. “Looking at the most recent reading of ABC’s Construction Confidence Index, contractors are already seeing momentum slow. The likely exception is public contractors, who will continue to benefit from stepped-up infrastructure spending.”