The 2019 Dodge Construction Outlook paints a picture of what to expect in the industry this coming year. Among topics like sector growth and new builds, construction cost of goods is a common one.
Will the steady increase of construction cost of goods continue into 2019? The short answer is yes.
Construction companies should expect that the cost of goods will continue to increase, but Dodge’s Chief Economist Robert Murray explained that it shouldn’t be as big of a concern as it’s been in prior years. But why?
He said, “There are, of course, mounting headwinds affection construction, namely rising interest rates and higher material costs, but for now these have been balanced by the stronger growth for the U.S. economy, some easing of bank lending standards, [and] still healthy market fundamentals for commercial real estate.”
So while a strong economy will help mitigate some of these concerns, as an owner or general contractor, you still need to know what areas you should expect to increase. How else can you plan ahead?
Construction Cost of Goods Year-Over-Year Snapshot
This year-over-year snapshot from 2014-2018 should give you perspective on how the rest of 2019 will shape out.
The chart below shows the year-over-year change in PPIs (or Producer Price Indexes) for construction materials from 2013-2018. A few highlights:
- The year that saw the most decreases in construction cost of goods was 2015, the biggest decrease being iron and steel scrap. Oddly enough, those products had the highest increase in cost the following year.
- Over 5 years, the product that saw the highest average increase was iron and steel scrap; the product with the lowest average increase (in fact, the average was actually a decrease in cost) was stainless and alloy steel scrap.
- Most recently, in 2018, the cost of asphalt (at refinery) was the highest increase at 23%, and stainless and alloy steel scrap had the highest decrease in cost at -13%.
| Goods/Materials | 2014 (Change from 2013) | 2015 (Change from 2014) | 2016 (Change from 2015) | 2017 (Change from 2016) | 2018 (Change from 2017) | Average change over 5 years |
| #2 diesel fuel | -26.9 | -43.1 | 21.4 | 40.9 | 5.0 | -0.54 |
| Paving mixtures and blocks (asphalt) | 2.5 | -6.5 | -5.6 | -0.4 | 10.2 | .04 |
| Asphalt felts and coatings | 2.4 | -4.7 | -1.9 | 2.2 | 10.6 | 1.72 |
| Prepared asphalt & tar roofing & siding products | 2.5 | -2.1 | -1.0 | 1.6 | 10.9 | 2.38 |
| Cement | 5.7 | 6.5 | 5.0 | 4.3 | 2.8 | 4.86 |
| Concrete products | 5.1 | 2.9 | 3.1 | 2.9 | 3.5 | 3.5 |
| Concrete block and brick | 3.2 | 1.9 | 2.0 | 2.9 | 3.4 | 2.68 |
| Concrete pipe | 3.2 | 2.8 | 2.2 | 0.5 | -0.6 | 1.62 |
| Ready-mixed concrete | 5.5 | 3.7 | 3.7 | 3.1 | 3.1 | 3.82 |
| Precast concrete products | 6.5 | 1.7 | 0.5 | 3.5 | 6.0 | 3.64 |
| Prestressed concrete products | 2.3 | -0.9 | 11.1 | 1.9 | 4.3 | 3.74 |
| Brick and structural clay tile | 1.4 | 1.3 | 1.0 | 1.7 | 1.2 | 1.32 |
| Plastic construction products | 1.6 | 0.8 | -0.1 | 4.7 | 2.7 | 1.94 |
| Flat glass | 2.4 | 5.3 | 3.1 | 1.1 | 1.3 | 2.64 |
| Gypsum products | 5.1 | 0.1 | 7.9 | 5.8 | 2.9 | 4.36 |
| Insulation materials | 2.5 | 0.5 | 3.1 | 1.2 | 5.1 | 2.48 |
| Lumber and plywood | 3.3 | -7.9 | 3.6 | 11.2 | -4.4 | 0.6 |
| Architectural coatings | 0.9 | -2.8 | 0.9 | 2.6 | 7.2 | 1.76 |
| Steel mill products | 0.7 | -19.4 | 8.6 | 7.5 | 18.5 | 1.58 |
| Steel pipe and tube | 0.0 | -16.1 | 5.4 | 10.2 | 21.3 | 4.16 |
| Copper and brass mill shapes | -4.5 | -19.3 | 21.1 | 9.0 | -5.6 | 0.14 |
| Aluminum mill shapes | 10.9 | -14.0 | 5.5 | 10.1 | 6.3 | 3.76 |
| Sheet metal products | 2.5 | -1.5 | 2.2 | 2.2 | 6.7 | 2.42 |
| Fabricated structural metal | 1.4 | -3.3 | 2.3 | 3.5 | 12.0 | 3.18 |
| Fabricated structural metal bar joists & rebar | 2.5 | 0.1 | 4.9 | -0.5 | 12.2 | 3.84 |
| Fabricated structural metal for non-industrial buildings | 2.2 | 0.5 | 4.0 | -1.3 | 13.1 | 3.7 |
| Fabricated structural metal for bridges | 5.8 | -7.5 | -7.0 | -0.4 | 15.0 | 1.18 |
| Ornamental and architectural metal work | 3.1 | 0.1 | 2.2 | 3.5 | 12.4 | 4.26 |
| Fabricated steel plate | 1.4 | -1.3 | 0.2 | 1.4 | 2.1 | 0.76 |
| Prefabricated metal buildings | 3.6 | -2.0 | 4.8 | 3.1 | 11.7 | 4.24 |
| Construction machinery and equipment | 1.6 | 1.2 | 0.9 | 0.9 | 3.4 | 1.6 |
| Truck & bus (incl. off-the-highway) pneumatic tires | -4.3 | -4.2 | 2.7 | 1.8 | 2.5 | -0.3 |
| Asphalt (at refinery) | 5.2 | -45.5 | -9.8 | 28.3 | 23.2 | 0.28 |
| Construction sand/gravel/crushed stone | 3.3 | 4.6 | 2.3 | 4.2 | 4.1 | 3.7 |
| Iron and steel scrap | -16.9 | -50.8 | 63.7 | 18.5 | 13.8 | 5.66 |
| Stainless and alloy steel scrap | -4.5 | -35.7 | 30.3 | 3.9 | -13.0 | -8 |
| Copper base scrap | -11.9 | -28.4 | 11.0 | 17.5 | -9.0 | -4.16 |
This historical look back gives you added insight as you begin to budget for upcoming purchases. Future construction cost of goods will always depend on the economic state of the country, all signs point to continued upward trend. The bigger unknown is the labor costs and availability for specialty trades and subcontractors. The trend line on labor is up for most of the US in the first two months of 2019, with a flat line in the Northeast. No surprise there
