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Construction Cost Trends—July 2016

Posted: July 18, 2016 | Cost Trends

Source: US Department of Labor, Producer Price Index

The construction industry remains on an upward track. Housing is still strong with gains of 10% and some clear signs of sustainable momentum. Commercial construction has had gains in the 10-15% range, with some red-hot regional markets showing gains over 20%. All segments of private construction are up and most of the public segments are following (but at a lesser rate of 7-8%). Hotels and offices are leading the way with lofty gains of 25-30%.

CONSTRUCTION MATERIALS

Little has changed since our last report, most commodities still aren’t moving. Inflation remains low and economists project at least several more years of flat prices. Copper is continuing to drop, but oil seems to be stabilizing at around $50 a barrel. Until we see some sort of sustained growth in the emerging economies, this situation is likely to continue. The U.S. Economy is the driver at the moment with Europe and China working their way out of current problems.

HOT ROLLED STEEL BAR

Last year we stated the price of iron ore has to affect steel, but it just doesn’t seem to be working that way. One thing that’s helped steel stabilize is strong U.S demand, so watch for a leveling off of the price of this component in spite of deflating iron ore prices. The continued slowdown in Asia will probably also help keep steel prices in check.

CONCRETE BLOCK (CMU)

Over the past few years, we’ve said that the price of CMUs should follow the fortunes of the housing market. Housing continues to do well. But in spite of rising housing starts, the price of concrete block continues to decline. After being up 2% for each of the last two years, concrete block has reversed and is now down 3-4%.

CRUSHED STONE

Last year at this time we were confident that crushed stone would follow the fortunes of commercial and heavy construction. Well, that theory may not be working (so much for economics). Now we see a reversal in the increases of the last two years and a decline for this year. Let’s just wait and see what happens after a twelve month cycle of robust construction.

GLASS

The price of glass is showing signs of increasing with the industry. After lows in 2010, glass has moved up consistently along with construction. Last year glass was up 8% over the previous five years for a consistent average of 1.6% per year. This year alone glass is up 7-8% so we probably want to keep an eye on it.

PRECAST CONCRETE

After spiking in Q3 of 2014, precast concrete moderated and showed gains of 2-3% for the year. We see that it has pretty much maintained a slow but steady growth for the past five years.

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