Latest Producer Price Index report offers little relief

Yahoo

3 days ago

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Dive Brief:
Construction input prices ticked up 0.4% in July, the same increase for nonresidential inputs, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics' Producer Price Index data.
Input prices now sit 2.2% higher overall and 2.6% higher for nonresidential construction compared to a year ago, according to the report. Copper wire and cable, for example, surged 4.9% in July and 12.2% year over year.
That price escalation, fueled by trade policy, could compress contractor margins in the months ahead, even as builders still hold a relatively upbeat level of confidence, said Anirban Basu, ABC chief economist.
Dive Insight:
Rising tariff levels pushed nonresidential construction input prices higher for a third consecutive month, according to the Associated General Contractors of America.
Duties on aluminum and steel, along with a more recent tariff on raw copper, have prompted suppliers to raise prices. Aluminum mill shapes jumped 7.4% for the month and 13.7% from a year ago. Meanwhile, copper and brass mill shapes increased 5.7% for the month and 6.9% year over year. Steel mill products slipped 0.5% in July, though they still sit 8.8% higher compared to July 2024, according to AGC.
'Steep tariff increases earlier this year… drove the producer price index for construction inputs higher,' said Ken Simonson, AGC chief economist. 'Even though contractors do not generally import materials directly, it is clear that domestic producers are raising prices in line with the protection tariffs are providing them.'
That's making contractors feel the squeeze at a time when higher interest rates and market uncertainty have cooled demand for some private sector work. Nonresidential construction spending decreased again in June, the most recent month for data, for the sixth time over the past seven months.
But July's Producer Price Index may have a more tempered impact, said Paul Giorgio, chief operating officer at Los Angeles-based Eldridge Acre Partners, which recently spun off from AECOM Capital as a separate investment real estate firm.
'Although the PPI rose 0.9% which was higher than 0.2% expectations, the impacts to the consumer and owners were not impactful as the Consumer Price Index only had an insignificant 0.2% increase and only 2.7% increase year-over-year,' Giorgio told Construction Dive. 'These adjustments are in line with normal escalation and not material.'
Nevertheless, the cost of key inputs, such as aluminum, steel and copper, continues to rise faster than anticipated, said Michael O'Reilly, vice president at Rider Levett Bucknall, a New York City-based construction consultancy firm. That's causing the construction industry to remain cautious.
'While some relief may come from potential interest rate cuts later this year, much of the industry's optimism hinges on trade policy stabilization," O'Reilly told Construction Dive. 'Without meaningful changes to tariff structures or supply chain conditions, the construction sector may continue to face headwinds through the remainder of 2025.'
ABC's Basu cautioned broader inflationary pressures may complicate the Federal Reserve's decision on interest rates in September.
'With prices for final demand goods and services rising at the fastest pace since March 2022, the Federal Reserve will have to consider the prospect of resurgent inflation when deciding whether or not to cut rates at its September meeting,' said Basu. 'The construction industry is in desperate need of lower borrowing costs, and higher rates for longer would continue to weigh on construction spending.'
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