The latest data from the U.S. Bureau of Labor Statistics reveals a surprising stability in construction input prices. According to the Associated Builders and Contractors’ analysis, these prices remained unchanged in July, marking five consecutive months of plateau. A closer look reveals that overall construction costs are 3.1% lower than this time last year. For construction business owners, particularly homebuilders, this is a significant development to be aware of and understand deeply.
While construction inputs remain nearly 40% higher than pre-pandemic levels, the current plateau in costs is a bright spot, indicating a cooling of inflation. The question at the forefront of every construction business owner’s mind is simple: Why? According to Anirban Basu, ABC’s chief economist, the main driver of these positive economic outcomes in the U.S. is the improvement of supply chains amidst a sluggish global economy.
The Exception to the Rule
Despite this stabilization, not all input categories are enjoying a respite. The energy sector experienced a notable increase over the month, with natural gas, crude petroleum, and unprocessed energy materials seeing price jumps of 11%, 8.4%, and 8%, respectively. These materials are susceptible to a blend of geopolitical tensions, weather fluctuations, and investor activities – a cocktail that can spell unpredictability for business owners.
The Hidden Hurdle
Construction business owners need to keep a close eye on more than just materials. The price of construction equipment, essential for any building project, increased nearly 2% in July and a significant 10% over the past year. With the nation ramping up its infrastructure spending, contractors are facing lengthy lead times for equipment, adding a layer of complexity to project timelines and budgets.
The ‘Buy America’ Conundrum
New federal policies are also impacting the construction landscape. As noted by Stephen Sandherr, CEO of the Associated General Contractors of America (AGC), the ‘Buy America’ requirements for publicly funded projects pose a serious challenge. These requirements, strict to the point where even products manufactured in the U.S. could be non-compliant due to containing minor components sourced from abroad, may severely limit the supply of materials contractors can use and increase costs. For construction business owners, this policy means navigating a more complicated procurement process, at least in the short term.
What Can Business Owners Do?
For construction business owners, particularly homebuilders, these stabilized prices provide an opportunity to revisit budgets and project timelines. Here are some actionable steps:
- Assess and Adjust: Use this period of stability to reevaluate your project costs. Adjust bids and contracts as necessary to reflect the current landscape.
- Plan for Energy Costs: Given the volatility in energy prices, consider locking in contracts for these materials now to avoid future price shocks.
- Streamline Equipment Procurement: Explore options for leasing instead of buying, or consider joint ventures with other contractors to share equipment and mitigate lead times.
- Stay Informed on Policy: Keep a close eye on policy developments, such as the ‘Buy America’ requirements, and adjust your supply chain strategies accordingly.
The Road Ahead
For now, the construction industry seems to be navigating a period of calm in a previously stormy sea of rising prices. For construction business owners, this period is not just a breather but an opportunity – a chance to reassess, re-strategize, and rebuild for the future in a thoughtful and informed manner.