Construction materials

Peak price? The June PPI shows signs of relief for building materials.

Diving brief:

  • Costs for non-residential building materials rose again in June, but there were signs of relief in the Bureau of Labor Statistics’ Producer Price Index report on Thursday, as commodity values have softened.
  • Supplies for non-residential contractors cost 1.8% more in June than a month earlier, and 20.3% more than a year ago, according to an analysis by Associated Builders and Contractors. However, input prices fell in four of 11 sub-categories, with softwood lumber falling the most, down 24.8% for the month.
  • “It is no secret that contractors and their customers have been the victims of massive increases in building material prices,” ABC chief economist Anirban Basu said in a statement. “But more recently the prices of major commodities have come down, so it’s possible we’ve peaked in inflation.”

Overview of the dive:

The report follows broader analysis by Jay Pendergrass, director of supply chain at No. 11 contractor Gilbane, who noted declines in steel, copper and timber in the second half of 2022. Taken together, the optimism around pricing this week could signal the beginning of the end of pandemic-era material cost escalation for contractors.

Producer price index, June 2022
1 month change change over 12 months
Inputs for non-residential construction 1.8% 20.3%
Softwood lumber -24.8% -38.1%
iron and steel -2.9% 16.3%
Steel products -1.8% 22.4%
Non-ferrous wires and cables -0.6% 15.1%
Plumbing fixtures and fittings 0.4% 11%
Fabricated structural metal products 0.6% 26.2%
Concrete products 1.9% 13.5%
Prepared asphalt, roofing and tar coating 3.2% 22.2%
Crude oil 19.4% 77.1%
Untransformed energy materials 20.4% 126.8%
Natural gas 24.3% 224.5%

SOURCE: Bureau of Labor Statistics, Builders and Associated Contractors

However, Basu’s interpretation of the BLS numbers made it clear that construction contractors are unclear. The war in Ukraine, combined with ongoing supply chain issues, translates into an ongoing risk when it comes to moving material goods around the world.

And in its own analysis of the PPI figuresAssociated General Contractors of America Chief Economist Ken Simonson said reported cost declines may not reflect the latest market moves.

“Some material prices have fallen recently, but others appear to be heading for further increases,” Simonson said in a statement. “Since these prices were raised, producers of gypsum, concrete and other products have announced or implemented further increases. Additionally, the supply chain remains fragile and continued difficulties in filling vacancies mean that construction costs are likely to remain high despite some price cuts.

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Courtesy of the associated builders and contractors

But from Basu’s perspective, the specter of recession that has hung over the market in recent months could very well bring relief from falling costs in the future.

“With much of the world at risk of recession, it is likely that there will be more downward pressure on commodity prices going forward,” Basu said. He added that while oil was previously $120 a barrel, this morning’s price had plunged into the low $90s as natural gas prices also fell. This may reflect a possible readjustment to the disruptions caused by the war.

“We appear to be entering a new phase in the trajectory of input prices,” Basu said.

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