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Dive brief:
- Construction input prices rose 2.2% month over month in March, according to an analysis of the latest economic data from the Associated Builders and Contractors released Tuesday.
- Non-residential inputs rose 2.3% month-on-month in March, mainly due to a jump in crude oil prices. At an annualized rate during the first three months of the year, input prices increased by 18%.
- The jump in crude oil stems from ongoing geopolitical tensions linked to the conflict in Iran, said Anirban Basu, chief economist at ABC.
Diving knowledge:
Crude oil rose 20.2% month-on-month in March, putting upward pressure on “virtually all construction materials,” Basu said.
He added that it remains to be seen how other input prices will react in the coming months. Year-on-year, construction materials prices rose 4.8%, the biggest annual gain since January 2023, the report said.
Despite this backdrop, expectations about profit margins among contractors rose again in March, according to ABC.
“The rapid rise in diesel prices since late February, for example, will increase shipping costs,” Basu said. “It will be interesting to see if this optimism persists in the event of prolonged conflicts in the oil market.”
At the moment, the impacts are more frequent in the fuel markets. Diesel prices increased by 37.8% from February to March biggest increase in a month since the Gulf War in 1990, according to an analysis by the Associated General Contractors of America.
“The surprising jump in fuel costs only reflects prices in mid-March,” said Ken Simonson, AGC’s chief economist. “Diesel fuel prices have continued to rise sharply since then, while the destruction of aluminum facilities and the blockade of ship movements due to the Middle East war are driving costs even higher.”
According to AGC, contractors have reported being hit with rapidly increasing fuel surcharges on thousands of deliveries of materials and equipment to job sites. This is in addition to the direct cost of the fuel they purchase for their trucks and construction equipment.
“Because contractors are rarely able to pass on cost increases after committing to a project, these extreme and sudden jumps are causing major difficulties,” said AGC CEO Jeffrey Shoaf. “Furthermore, uncertainty about future costs and demand for structures may cause owners to delay or cancel previously planned projects, adding to contractors’ problems and slowing economic growth.”
