Labor costs, inflation drive construction costs higher

The U.S. Bureau of Labor Statistics released its Producer Price Index data on Sept. 14, showing a nationwide rise in construction costs.

Residential and non-residential construction input prices rose 1.5% from July, according to the data. Rising energy prices, labor and overall inflationary increases are driving building costs upward.

Energy costs were at the forefront of increases, with crude petroleum prices up 8.9% and unprocessed energy materials up by 5.4% month over month.

Anirban Basu, chief economist for the Associated Builders and Contractors (ABC) organization, said rising costs are a continuing problem.

Basu, in a statement released by the ABC, said that those who believed excess inflation would disappear were “rudely awakened” with the release of the data.

“Yesterday’s consumer price data and today’s PPI release indicate that price growth continues to be problematic,” Basu said. “While energy prices will grab headlines, items like concrete and switchgear also exhibited inflationary tendencies in August.”

Increasing costs have many implications for construction contractors, he said, chiefly that “persistently elevated inflation will keep interest rates high for longer.” Basu said the ABC has been predicting these increases for months.

“With labor costs still rising, consumers spending aggressively, oil-producing nations limiting output and global supply chains being reorganized, there is reason to believe that future readings will also demonstrate excess inflation is here to stay,” he said in the statement.

Though costs have decreased dramatically over the last two years, the BLS data shows steady increases over the last couple of months.

From July to August of this year, inputs to construction were up 1.5%; inputs to multifamily construction were up 1.0%; nonresidential construction, 1.5%; commercial construction, 0.9%; health care construction, 0.9%; industrial construction, 1.4%; other nonresidential construction, 1.7%; and maintenance and repair construction, 1.7%.

The highest month-over-month price increases in commodities came from crude petroleum at 8.9%, whereas the biggest cost decrease was in natural gas, down 6.3%, which also had the most dramatic increase year-over-year, down 77.7%. The largest cost increase over the past year was from concrete products, which are up 8.7% since August of 2022, and up 0.5% from July to August this year.