It seems nothing is predictable in the construction industry these days. Trends and numbers do not always add up for builders who are slogging through one of the biggest construction turndowns in decades.
That is certainly the case with current construction materials prices.
According to a report from the Associated Builders and Contractors, which cited U.S. Department of Labor figures, construction materials prices decreased 0.1 percent in June.
Year over year, construction materials prices were 1.5 percent higher in June. Nonresidential construction materials prices were unchanged, rose 0.1 percent for the quarter and increased 1.2 percent during the last 12 months.
Still, given the number of current market uncertainties across the nation and world, the stable construction materials prices is a head-scratcher for many in the construction industry.
“This elevated level of price stability is somewhat unexpected given shifting monetary policies in much of the world, including in the form of substantial money supply creation, concerns regarding the U.S. fixed income and equity markets – which has rendered investors a bit more skittish of late – and a global economy positioned to expand more than 3 percent this year,” said Associated Builders and Contractors chief economist Anirban Basu in a statement back in June. “Despite those factors, commodity prices have remained relatively stable and so have nonresidential construction materials prices.”
Basu characterized nonresidential construction materials prices as “well-behaved.”
Contractors have largely been eating any cost increases in an effort to land jobs. That could be fatal for many contractors if prices were to make a sudden jump, according to Ken Simonson, chief economist with Associated General Contractors of America.
“Contractors have held the line on pricing, even as costs shoot up for some items they buy,” Simonson observed. “The net effect of these diverse changes is that some contractors may be squeezed out of business if they are caught by an unanticipated price spike.”
Continuing on theme of uncertainty, some materials prices are up, while others have decreased. Trying to make sense of it and plan for the future is difficult, Basu said.
“With the global economy beginning to tread water, the good news is materials prices are unlikely to rise significantly during the next several months,” Basu said. “However, even as global economic growth slows, equity and certain other asset prices have been on the rise due in large measure to accommodative monetary policy.
“It is always possible that investors will begin to shift greater focus toward commodities going forward, which could drive materials prices higher even in the absence of accelerating global economic growth or significant rebound in America’s nonresidential construction industry.”