Construction input cost analysis
Input costs growth continues to soften
Materials
Construction material costs have decreased as demand has cooled. Examining US producer prices indicates that there have been two decreases on the quarter, with Q2 2024 and Q3 2024 falling by 1.5 and 1.4 percent, respectively.
Structural steel and lumber have moved downwards from the highs of 2022. Many material items have not significantly moved this month. Additionally, there has been an overall improvement in the supply chain in 2024, with the main exception being electrical items, such as copper cables, panels, transformers and switch gears. Electrical price increases are being fueled by the demand for AI technologies, advanced manufacturing and data centers, all of which require heavy electrical infrastructure.
Material lead times are a growing concern due to a recent US Dockworkers' strike. The International Longshoremen’s Association has extended their contract to January 2025, allowing more time for negotiations. However, without a deal, further supply chain disruptions for construction materials, especially those reliant on ports or freight transport, may occur.
For the remainder of 2024, energy price increases seen in October could put pressure on construction material prices. Additionally, with the recent hurricane season having affected southeast supply chains, wider effects on lead times and costs will be present while the region recovers.
Going forward into 2025, the incoming presidential administration has continued to signal that they will raise tariffs on imports. If such tariffs are implemented, this could pressure material escalation upwards. However, the recent increase in domestic manufacturing may help mitigate the broader impacts on construction supply chains.
Source: Bureau of Labor Statistics
Labor
The heated labor market has shown more signs of easing this quarter. Cooling demand and moderated inflation have eased construction wage growth. Average hourly wages and average weekly wage growth have softened to 4.5 and 4.3 percent on the year in Q3 2024, respectively.
Hiring has also eased off and job openings in the construction sector have continued to fall, with both metrics decreasing by 1.7 and 26.8 percent on the year, respectively, in Q3 2024. This doesn’t necessarily indicate a labor force reduction, just that the appetite to take more people on has dulled slightly. Resignations have also decreased, falling by 17.1 percent on the year, suggesting employees are more cautious at leaving their current employment position and securing work elsewhere. These indicators could dampen wage growth further.
Although the difficulty of acquiring labor has gone down this quarter, skilled labor continues to be an ongoing concern for many firms. In the 2024 survey by the Associated General Contractors of America (AGC), 77 percent of firms stated that they are still having problems filling salaried and hourly craft positions, with 55 percent believing it will continue to or become harder to hire for these positions in the future.
Source: Bureau of Labor Statistics
Machinery and equipment
In Q3 2024, machinery and equipment escalation increased by 2.2 percent on the year. This overall softening of escalation can be seen by the price growth for excavators, forklifts and generators. Cranes are the exception, as their growth has had low volatility for the past five years. This decrease in equipment demand can be seen with Caterpillar, one of the largest construction equipment manufacturers. Their sales and revenue on the year is down by 4.0 percent as of Q3 2024.
Construction machinery and equipment escalation closely follow future infrastructure spending. With an easing infrastructure workload, construction machinery and equipment escalation has cooled when compared to past quarters. However, there is still public funding available for infrastructure projects in 2025. Once this funding is committed, the infrastructure workload is expected to increase again.
Source: Bureau of Labor Statistics
