Construction costs rose in May at the fastest annual pace since the pandemic

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Dive brief:

• The prices of construction inputs increased in May to faster annual rate since the pandemic, according to a report from the Associated General Contractors of America.
• Global costs of construction materials increased by 2.6% month over month in May and are now up 9.6% over the past year, according to an Associated Builders and Contractors analysis of the latest economic data released Thursday.
• The latest price data adds pressure on contractors’ margins as material costs continue to outpace what companies can charge homeowners for new work, said Ken Simonson, AGC’s chief economist.

Diving knowledge:

Fuel and metals costs drove much of the increase, the data showed. Rate-sensitive materials such as steel and copperit also continued to post price gains.

“Spiking prices for key construction inputs are driving up costs twice as fast as the 4.2% increase in the consumer price index,” Simonson said. “Contractors are being hit by a double whammy of rising material prices and much lower increases than they can charge for new projects.”

According to ABC analysis, construction input costs have risen every month this year.

“Construction input prices rose again in May and are now up nearly 10% year-on-year,” ABC chief economist Anirban Basu said in the statement. “Oil prices, pushed higher by the conflict with Iran, made a significant contribution to the rise in overall material prices, but the biggest concern is the continued growth in prices of tariff-hit inputs such as iron, steel and copper.”

Iron and steel prices rose 1.4% month-on-month in May and rose 7% compared to 12 months ago. Copper wire and cable costs rose 7.3% month-on-month and soared 24.2% over the past year, according to ABC.

“Contractors remain optimistic that their profit margins will widen over the next six months,” said Anirban Basu, chief economist at ABC. “However, it seems likely that escalating material prices and stubbornly high borrowing costs could weigh on profitability.”