Prices for Construction Materials Diverge Sharply in January as Demand Shifts From Homebuilding to Factory and Infrastructure Projects

Contractors encountered a wide range of price changes for key construction inputs in January, with steep increases for fuel, concrete, and gypsum products offsetting sharp declines in lumber and steel prices, according to an analysis by the Associated General Contractors of America of government data released today. Association officials said a lack of clarity from officials in Washington as to what materials may be used on federally assisted projects is adding to price disparities.

“Producer price indexes for construction inputs moderated over the past year but many items increased again in January,” said Ken Simonson, the association’s chief economist. “With demand shifting among project types, prices for many inputs are likely to diverge further in 2023.”

The producer price index for inputs to new nonresidential construction—the prices charged by goods producers and service providers such as distributors and transportation firms—jumped 0.9 percent last month but rose by a relatively modest 4.3 percent from January 2022. Falling demand for new homes drove the index for new single-family construction down to a year-over-year increase of just 0.2 percent.

The increase in January was driven by several inputs. The producer price index for diesel fuel soared 7.1 percent for the month and 22.8 percent over 12 months. The index for cement leaped 7.7 percent in January and 17.8 percent compared to a year earlier. That, in turn, fueled an increase in the index for concrete products of 1.8 percent for the month and 14.8 percent year-over-year. The indexes for architectural coatings, such as paint, gypsum building materials, such as wallboard, were flat for the month but climbed 15.8 percent and 11.1 percent, respectively over the year.

These increases more than offset several declining prices. The producer price index for steel mill products slid 2.3 percent for the month and 30.1 percent over 12 months. The index for lumber and plywood was unchanged in January but fell 30.8 percent from a year earlier.¬

Association officials said that officials in Washington have left many questions unanswered about what materials qualify to be used on infrastructure projects funded by the Bipartisan Infrastructure Law. The continuing uncertainty about eligible goods will make it hard for contractors to find materials to complete infrastructure projects, raise the cost of those materials and lead to delays in completing the work.

“Unfortunately, more than 15 months after enactment of the infrastructure law, the administration’s guidance about materials is still confusing, contradictory, and incomplete,” said Stephen E. Sandherr, the association’s chief executive officer. “Uncertainty about eligible materials threatens to delay needed infrastructure projects and make them much more expensive.”