Despite materials price surge, US contractors remain confident

(Source: US Bureau of Labor Statistics)

ABC said, overall, construction input prices are 2.3% higher than a year ago, while non-residential construction input prices are 2.2% higher.

Non-residential prices rose 0.6% from March to April 2024.

The association added that prices increased in two of the three energy subcategories last month: Crude petroleum prices are up 10.6%, while unprocessed energy materials prices increased 8.2%.

Natural gas prices fell 0.9% in April.

ABC chief economist Anirban Basu said input prices have increased 3.5% over the first four months of the year.

“While iron, steel, asphalt, and gypsum product prices fell in April, oil and copper prices surged, driving the monthly increase,” said Basu. “Rising input prices will put pressure on profits at a time when nearly one-in-four contractors expect their margins to contract over the next two quarters, according to ABC’s Construction Confidence Index.”

Basu added that the country’s contractors hoping for federal interest rates to come down are likely going to need to wait a little bit longer.

(Source: US Bureau of Labor Statistics)

“Perhaps more importantly for contractors, the overall Producer Price Index reading for final demand goods and services increased 0.5% in April,” said Basu. “This is yet another sign that inflation is accelerating and suggests that interest rates are set to stay higher for longer.”

Facing headwinds, mid-sized US contractors still poised

“The Federal Reserve began ratcheting up interest rates more than two years ago, but one would not know it based on construction confidence and backlog,” remarked Basu. “While there are occasional hints of softness in certain segments and over certain periods, the average contractor continues to report solid backlog and a belief that sales, employment and profit margins will expand over the next six months.”

ABC’s Construction Backlog Indicator increased to 8.4 months in April, according to a member survey it conducted from April 22 to May 6. Year-over-year, the reading is down 0.5 months, but grew by 0.2 months from March.

But it might be a case where the nation’s mid-sized firms are seeing the bulk of the boon.

(Source: Associated Builders and Contractors)

“Backlog declined on a monthly basis for the largest and smallest contractors by revenue and grew for those with $30-$50 million and $50-$100 million in annual revenues,” said ABC. “On an annual basis, only contractors with $30-$50 million in annual revenues have experienced an increase in backlog.”

On the whole, ABC’s Construction Confidence Index showed – driven by solid backlog growth – that the country’s builders are still expecting progress over the next six months.

Basu, though, was not as sanguine in ABC’s analysis of the index and monthly backlog figures.

“Time will tell whether this optimism is justified,” he said. “Coming into the year, many expected that interest rates would fall markedly in 2024. Given stubbornly elevated inflation, that will not occur. Project financing costs are poised to remain higher for longer. Project cancellations and postponements have been on the rise. Moreover, a new set of supply chain issues has emerged, driving up materials costs and prospectively weakening industry margins.”

(Source: US Bureau of Labor Statistics)