According to the Associated Builders and Contractors, construction input prices increased 1.3% in January. Data from the Bureau of Labor Statistics’ Producer Price Index. Input prices for nonresidential construction rose 1.1% month on month.
Overall, building input prices are up 4.9% year on year, the smallest yearly increase since January 2021. Input prices for nonresidential building have risen 4.9% since January 2022.
“Recent employment and retail sales reports indicate that the economy is not slowing nearly as quickly as predicted,” Anirban Basu, ABC Chief Economist, stated. “That is the good news. The bad news is that the economy remains overheated, a phenomenon neatly reflected in the January PPI data, which indicated that construction input price gains accelerated on a monthly basis. For instance, construction machinery and equipment prices expanded 3.4% in January and are up more than 12% during the past year.
“The implication is that the Federal Reserve will maintain higher interest rates longer,” said Basu. “Ironically, it is the current strength of the economy that makes a recession more likely sometime during the next 12 months. At some point, higher interest rates will meaningfully affect economic activity. With industry backlog high, according to ABC’s Construction Backlog Indicator, many nonresidential contractors will feel little to no effect from higher interest rates in 2023. But in certain construction segments and locations, these dynamics could make the next two years more challenging.”
