Overall Inflation Ebbs as Industry Materials Prices Inch Up

From press releases

WASHINGTON, Aug. 13-14 — Inflation continued to ebb Wednesday, increasing the likelihood that the Federal Reserve will finally begin its long-awaited cutting of interest rates at its September meeting.

For July, the Consumer Price Index (CPI) rose 2.9% from a year earlier, according to the U.S. Dept. of the Labor. That represents the lowest reading since 2021 and came in just under economists’ expectations of 3%. Core inflation, which excludes food and energy items, registered at 3.2%, also a three-year low.

In the construction industry, materials input prices actually increased 0.4% in July compared to the previous month, according to an Associated Builders and Contractors (ABC) analysis of U.S. Bureau of Labor Statistics' Producer Price Index (PPI) data released Aug. 13. Nonresidential construction input prices also increased 0.4% for the month.

Overall construction input prices are 1.1% higher than a year ago, while nonresidential construction input prices are 0.8% higher. Prices increased in all three energy subcategories last month. Natural gas prices were up by 13.3%, while unprocessed energy materials and crude petroleum prices rose 6.2% and 5.5%, respectively.

“Construction input prices increased in July, ending a streak of two consecutive monthly declines,” said ABC Chief Economist Anirban Basu. “Despite the monthly uptick, which was largely driven by higher petroleum and natural gas prices, input prices are up just 1.1% year over year."

According to ABC’s Construction Confidence Index, which measures membership mood, the lack of materials price escalation over the past 12 months is a welcome development for contractors, just 34% of whom expect their profit margins to expand over the next six months. "Ongoing input price moderation, along with the prospect of lower interest rates by the end of the third quarter, should bolster contractor sentiment in the coming months,” added Basu.

Contractor Confidence Declines, Backlogs Steady

ABC also reported that its Construction Backlog Indicator held steady at 8.4 months in July, according to the national nonunion group's member survey conducted July 22 to Aug. 6. That reading is down 0.9 months from July 2023.

View ABC’s Construction Backlog Indicator and Construction Confidence Index tables for July. View the full Construction Backlog Indicator and Construction Confidence Index data series.

Only the largest contractors, those with greater than $100 million in annual revenues, have longer backlog than one year ago. On a monthly basis, the decline in backlog was driven by declines among the smallest contractors, those with less than $50 million in annual revenue.

ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels fell in July. All three readings remain above the threshold of 50, indicating expectations for growth over the next six months.

“Contractor confidence regarding profit margins now stands at the lowest level since November 2022, which comes as little surprise," explained Basu. “There are now strong indications that elevated interest rates have finally taken their toll on a number of privately financed construction segments as well as the broader economy.

“While inflation has moderated in recent months, construction materials prices remain almost 40% above pre-pandemic levels,” he added. “With construction spending down for the past two months, the industry eagerly awaits lower interest rates. Given recent economic turmoil, the Federal Reserve will begin cutting rates at its September meeting,” Basu predicted.  

Visit abc.org/economics for the Construction Backlog Indicator and Construction Confidence Index, plus analysis of spending, employment, job openings and the Producer Price Index.

Associated Builders and Contractors is a national construction industry trade association established in 1950 that represents more than 23,000 members. Founded on the merit shop philosophy, ABC and its 67 chapters help members develop people, win work and deliver that work safely, ethically and profitably for the betterment of the communities in which ABC and its members work. Visit us at abc.org.