Construction Input Prices Dip 0.1 Percent In March With Wide Variation Among Key Goods And Services, Adding To Uncertainty About Future Costs

Drop in Energy Costs Offsets Jump in Asphalt and Steel Prices as Double-Digit Annual Increases for Some Materials Persist; Association Officials Say Federal Rules are Making it Difficult to Source Some Materials

The price of materials and services used in nonresidential construction inched down 0.1 percent from February to March, as plunging fuel prices outweighed increases in the cost of other goods­, according to an analysis by the Associated General Contractors of America of government data released today. Association officials said new rules associated with federal funding for a range of infrastructure projects will make it hard for firms to procure materials and may drive bidders away from the projects.

“With materials costs fluctuating so much month-to-month, contractors remain wary about committing to projects with unpredictable costs and lead times,” said Ken Simonson, the association’s chief economist. “While inflation in the broader economy is settling back to earth, construction costs keep hitting updrafts.”

The producer price index for inputs to nonresidential construction—the prices charged by goods producers and service providers such as distributors and transportation firms—ticked down 0.1 percent from February to March. The downturn was driven by a 2.3 percent drop in energy inputs, while the index for goods other than energy and foods climbed 0.5 percent. The index for services declined 1.0 percent.

Price patterns for key construction inputs varied widely in March. Price changes for the month ranged from increases of 2.1 percent for liquid asphalt and 1.2 percent for steel mill products to a decrease of 7.0 percent for diesel fuel.

Despite the recent moderation, many inputs continued to post double-digit cost increases from a year ago. Prices jumped 17.0 percent year-over-year for cement, 14.5 percent for both concrete products and architectural coatings, and 14.1 percent for paving mixtures and blocks. Prices climbed by 11.8 percent for gypsum building products and for construction machinery and equipment, 10.6 percent for flat glass, and 10.5 percent for insulation materials.

Association officials said firms are struggling to source materials that comply with strict new Buy America Build America requirements. The new rules governing procurement for many federally funded infrastructure projects require products to not only be manufactured in the U.S., but from components that were sourced with raw materials mined in the U.S. Few materials, including even screws, meet the new requirements, making it hard for firms to estimate construction costs and scaring some away from bidding for fear of running afoul of the new requirements.

“At some point people are going to wonder why all these projects the administration has announced funding for aren’t moving forward,” said Stephen E. Sandherr, the association’s chief executive officer. “Many projects will have a hard time getting bidders who can find materials that comply with these unworkable new requirements.”

View producer price index data.

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