<img height="1" width="1" src="https://www.facebook.com/tr?id=373327176680496&amp;ev=PageView&amp;noscript=1">

By: Alex Carrick on October 7th, 2021

Print/Save as PDF

Gap Between Increases in Material Costs & Bid Prices Shrinks; Still Immense

Economic News

Graph 2 at the end of this article shows that the gap between high year-over-year material cost increases, as captured in two Producer Price Index (PPI) series, and relatively restrained year-over-year bid price increases from contractors (also coming from a PPI) is narrowing, but it remains immense.

Gap Between Increases in Material Costs & Bid Prices Shrinks; Still Immense Graphic

The respective percentage-change figures in August, the latest month for which data is available, were +21% and +31% for materials, according to two alternative PPI measures, but +5% for bid prices.

Interestingly, +5% isn’t low. It’s a match for the currently concerning rate of general price inflation as reflected in the all-items Consumer Price Index (CPI). But +5% appears mild next to +31% or +21%.

The journey to Graph 2 through this article showcases the latest inordinately large increases in material costs (Graph 1) and the history of price changes for 28 construction inputs (Cluster Charts 1 to 7). Also, Table 1 includes pricing results for some additional construction components, plus PPI compilations of materials going into certain types of structures.

In late Spring, early Summer, huge hikes in the price of softwood lumber caught everyone’s attention. But that ‘madness’ has now passed. More sawmill capacity has been brought onstream, imports have been upped somewhat, the flurry of home renovation activity has eased with the onset of fall, and housing starts, after rising sharply, have leveled out.

In Graph 1, softwood lumber prices are shown to have dropped by half (-49.5%) over the latest three months. As a result, media headlines have moved on to different subject matter. But that’s surface coverage. There are plenty of other construction materials and components (including forestry products separate from softwood lumber) that are continuing to exhibit pricing strength.

The curves with recent ‘mountain peaks’ among the cluster charts include plywood, particleboard, steel items, aluminum mill shapes, copper wire and cable, asphalt, and gasoline.

There are also big year-over-year price increases for gypsum (+22.9%), insulation materials (+17.2%), heating equipment (+13.2%) and paints and coatings (+10.4%). Not too alarming, but still attention-worthy, are the y/y price increases for air conditioning equipment (+8.5%) and flat glass (+7.1%).   
Graph 1: U.S. Construction Material Cost Changes
From Producer Price Index (PPI) Series - August 2021
U.S. Construction Material Cost Changes
Data source: Bureau of Labor Statistics (BLS).
Charts: ConstructConnect.
Graph Cluster 1 - Forestry Products: U.S. Construction Material Costs (1) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (1) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 2 - Steel Products: U.S. Construction Material Costs (2) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (2) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 3 - Cement: U.S. Construction Material Costs (3) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (3) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 4 - Base Inputs: U.S. Construction Material Costs (4) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (4) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 5 - Energy-Related: U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 6 - Accessories & Arterial: U.S. Construction Material Costs (6) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Graph Cluster 7 - Equipment: U.S. Construction Material Costs (7) - From Producer Price Index (PPI) Series
U.S. Construction Material Costs (5) - From Producer Price Index (PPI) Series
The last data points are for August 2021.
Data source: U.S. Bureau of Labor Statistics (BLS), Producer Price Index (PPI) series, not seasonally adjusted (NSA).
Charts: ConstructConnect.
Table 1: U.S. Producer Price Index (PPI) Results
% Change in the August 2021 Index from:
  3 Years   1 Year    6 months   3 months   1 month 
  Ago   Ago   Ago   Ago   Ago
                   
Final Demand/Service/Commodity/Energy/Input:                  
Final Demand Construction 12.9%   5.0%   4.7%   2.4%   0.2%
   New warehouse building construction 13.6%   7.1%   6.9%   3.5%   0.2%
   New school building construction 13.1%   3.4%   3.7%   2.6%   0.1%
   New office building construction 13.2%   6.0%   4.8%   1.5%   -0.3%
   New industrial building construction 15.5%   5.0%   4.9%   4.0%   1.1%
   New health care building construction 11.7%   4.4%   4.7%   1.4%   0.6%
Architectural & engineering services 4.9%   3.3%   0.7%   0.2%   0.0%
Construction machinery & equipment 9.3%   5.4%   3.4%   2.5%   0.8%
Asphalt -4.0%   50.9%   26.1%   19.4%   1.1%
Plastic construction products 32.6%   29.6%   22.2%   11.0%   3.0%
Softwood lumber 18.6%   -9.8%   -30.8%   -49.5%   -27.3%
Hardwood lumber 28.2%   44.3%   21.2%   5.9%   -0.3%
Millwork 23.1%   16.8%   9.8%   0.8%   -2.3%
Plywood 78.0%   61.3%   38.2%   4.5%   -11.5%
Particleboard & oriented strandboard (OSB) 137.4%   71.1%   33.6%   8.8%   -8.9%
Gypsum 12.4%   22.9%   14.2%   6.5%   0.5%
Insulation materials 15.1%   17.2%   10.5%   6.7%   4.4%
Construction sand, gravel & crushed stone 13.5%   3.9%   1.9%   0.3%   -0.1%
Cement 8.0%   3.9%   3.1%   2.3%   0.6%
Ready-mix concrete 10.0%   5.1%   3.5%   2.5%   1.6%
Precast concrete products 17.3%   9.5%   5.9%   1.9%   0.5%
Prestressed concrete products 11.3%   9.5%   8.7%   5.5%   -1.1%
Brick (clay) 9.2%   4.5%   2.9%   0.6%   0.2%
Coal -3.1%   2.7%   3.1%   0.1%   -0.5%
Iron ore 29.6%   23.9%   19.6%   18.8%   0.2%
Iron & steel scrap 37.1%   87.1%   16.1%   6.6%   -3.7%
Steel bars, plates & structural shapes 26.1%   49.0%   26.8%   12.4%   2.4%
Steel pipe & tube 42.6%   63.5%   42.8%   23.8%   9.2%
Fabricated structural metal products 32.9%   32.4%   25.0%   12.1%   3.2%
Prefabricated Metal Buildings 44.0%   50.8%   28.8%   18.7%   3.3%
Aluminum mill shapes 15.2%   35.1%   20.9%   7.9%   3.7%
Flat glass 9.3%   7.1%   4.6%   2.8%   -0.3%
Paints, architectural coatings 22.0%   10.4%   7.2%   5.8%   0.5%
Lighting fixtures 13.4%   5.9%   5.1%   2.3%   1.0%
Plumbing fixtures & fittings 10.9%   4.3%   2.1%   1.5%   0.8%
Elevators & escalators 9.7%   3.9%   2.8%   1.2%   0.2%
Heating equipment 19.5%   13.3%   11.0%   6.6%   2.8%
Air conditioning equipment 14.3%   8.5%   5.4%   2.7%   0.1%
Copper wire & cable 26.7%   31.4%   15.8%   2.2%   1.9%
Regular gasoline unleaded 7.5%   77.5%   36.6%   5.6%   -2.8%
Diesel Fuel 25.6%   67.2%   20.8%   -1.4%   -2.0%
Inputs to new construction 24.5%   21.0%   12.0%   3.2%   -1.4%
Inputs to new residential construction 25.1%   19.9%   10.8%   2.0%   -3.2%
Inputs to new nonres construction 23.1%   21.4%   12.4%   4.0%   -0.1%
   Inputs to commercial construction 23.0%   21.4%   12.9%   4.7%   0.4%
   Inputs to healthcare structures 23.1%   20.3%   11.9%   3.9%   -0.1%
   Inputs to industrial structures 24.1%   20.2%   12.1%   5.3%   0.8%
   Inputs to highways & streets 19.3%   20.8%   12.7%   4.6%   0.6%
   Inputs to power & communication structures 22.0%   22.1%   13.0%   3.9%   -0.2%
   Inputs to educational & vocational structures 24.1%   20.1%   11.5%   3.1%   -0.5%
Construction materials (PPI 'Special Index') 31.9%   31.1%   19.3%   4.1%   0.1%
The 'final demand' indices (at top) reflect the prices paid by owners for the construction of projects. They include material, labor & markups.
The 'service', 'commodity' and 'energy' indices (in the middle section of the table) are based on 'factory-gate' sales prices.
The 'input' indices (at bottom) reflect costs faced by contractors. They exclude capital investment (i.e., machinery & equipment), labor & imports.
The 'input' indices are built up from the 'service' (design, legal, transport & warehousing, etc.) 'commodity' and 'energy' indices.
Data source: Producer Price Index (PPI) series from Bureau of Labor Statistics (BLS).
Table: ConstructConnect.
Graph 2: U.S. Construction Bid Prices vs Material Input Costs - August 2021
The gap between material cost increases year over year and bid prices year over year has diminished slightly but it still remains immense. The relatively restrained increase in the bid price index is being dictated by the desire to win contract awards in a tough competitive environment.
Latest data points are for August 2021.
Data source: Bureau of Labor Statistics, Producer Price Index data set.
Chart: ConstructConnect.

About Alex Carrick

Alex Carrick is Chief Economist for ConstructConnect. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985.