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Construction Inflation 2023
Construction Inflation
PPI Inputs and Final Demand updated 5-19-23 See Tables
Usually construction budgets are prepared from known “current” costs. If a budget is being developed for a project whose midpoint of construction costs is two years in the future, you must carry in your budget an appropriate inflation factor to represent the expected cost of the building at that time. Why the midpoint? Because half the project cost occurs prior to that point and half occurs later than that. The balance point for spending is 50-60% into the schedule. Construction inflation should always be calculated from current cost to midpoint of construction, or in the case of converting an older actual cost to a future budget, from midpoint to midpoint.
Any time a construction project is delayed or put on hold to start at some future date, construction cost inflation must be calculated and added to the previous budget to account for the unanticipated cost increase due to the delay. Of utmost importance is using appropriate cost indices and forecasting future cost growth to account for the difference in original budget and revised budget.
The level of construction activity has a direct influence on labor and material demand and margins and therefore on construction inflation.
- Long-term construction cost inflation is normally about double consumer price index (CPI).
- Although inflation is affected by labor and material costs, a large part of the change in inflation is due to change in contractors/supplier margins.
- When construction volume increases or decreases rapidly, margins change rapidly.
When construction is very actively growing, total construction costs typically increase more rapidly than the net cost of labor and materials. In active markets, overhead and profit margins increase in response to increased demand. These costs are captured only in Selling Price, or final cost indices.
General construction cost indices and Input price indices that don’t track whole building final cost do not capture the full cost of inflation on construction projects.
Consumer Price Index (CPI), tracks changes in the prices paid by consumers for a representative basket of goods and services, including food, transportation, medical care, apparel, recreation, housing. This index in not related at all to construction and should not be used to adjust construction pricing.
Producer Price Index (PPI) for Construction Inputs is an example of a commonly referenced construction cost index that does not represent whole building costs. The PPI tracks material cost inputs at the producer level, not prices or bids at the as-built level.
Engineering News Record Building Cost Index (ENRBCI) and RSMeans Cost Index are examples of commonly used indices that DO NOT represent whole building costs yet are widely used to adjust project costs. Neither includes contractor margins.
It should be noted, there are far fewer available resources for residential inflation than for nonresidential inflation.
One of the best predictors of construction inflation is the level of activity in an area. When the activity level is low, contractors are all competing for a smaller amount of work and therefore they may reduce bids. When activity is high, there is a greater opportunity to bid on more work and bids can be higher. The level of activity has a direct impact on inflation.
To properly adjust the cost of construction over time you must use actual final cost indices, otherwise known as selling price indices.
Selling Price is whole building actual final cost. Selling price indices track the final cost of construction, which includes, in addition to costs of labor and materials and sales/use taxes, general contractor and sub-contractor margins or overhead and profit.
Refer to National Inflation Indices for comparison to several national selling price indices or various Input indices. National reference indices are useful for comparison. Few firms project index values out past the current year, therefore all future projections in these tables are by Construction Analytics.
1-18-23 Construction Analytics PPI Tables and Building Cost Index
Construction Inputs to Nonresidential Buildings dropped for five of of last six months, now down 5.2% since June, but still up 7.2% since last December. However, the average index for 2022, when compared to the average for 2021, is up 15.7%.
The average growth for the year accounts for all the peaks and valleys within each year and is the value carried forward into the index tables and charts. A glaring example of the difference between Dec/Dec tracking, or year over year, and annual average tracking, is Steel Mill Products which is down 28.7% Dec22/Dec21, but the annual average for 2022 is still up 9.0% from the average 2021. In fact, the last three years show Dec/Dec combined inflation is +71%, but the annual averages for the last three years show total inflation growth of 87%. Annual averages should be used to report inflation.
Residential inputs are down seven of the last eight months, down 7.1% since April, but still up 7.1% since last December. The average for 2022, when compared to the average for 2021, is up 12.7%.
Several major cost components have been on decline the last few months: Lumber/Plywood, Steel Mill Products, Fabricated Steel, Steel Pipe and Tube, Aluminum and Diesel Fuel. Of the 15 items tracked here, 10 declined in the last quarter. Concrete is the only product that has not posted any monthly decline in 2022. Costs are still high, but are moving in the right direction after 1st quarter 2022 costs that averaged +7% (28%annual) to +8%. Historically, most cost increases are posted in the 1st quarter and the least in the 4th quarter.
If inputs costs remain where they are right now as we start the year, input costs for 2023 will finish the year at -2% Nonres and -4% Residential. If we were to post small but steady cost increases of 0.25%/mo for the rest of the year, we would end with both Res and Nonres input costs up 4% for the year.
4-14-23 PPI Inputs slowed considerably since last year.
PPI Inputs to Construction March 2023—Nonres down 0.1% in Mar, down 6 of last 12mo, -1%over 12mo. Rsdn down 0.3% in Mar, down 9 of last 12mo, -7.5% over 12mo.
Qtrly change last 5 qtrs Nonres 9.7, 3.0, -3.2, -2.5, 1.6 Rsdn 15.2, -1.4, -5.0, -2.3, 1.0
Historically, the 1st or 2nd qtr would post the highest gains for the year. Here’s 1st and 2nd qtr for 2021, 2022, 2023
Nonres 7.1% & 8.9, 9.7 & 3.0, 1.6 & … Rsdn 8.1 & 12.6, 15.2 & -1.4, 1.0 & …
Last 12 months down -1.0% for Nonres and -7.5% for Rsdn. 1st qtr 2023 1.6 and 1.0, instead of (2022) 9.7 and 15.2% and (2021) 7.1 and 8.1%
Still early, but 12mo, 6mo and 3mo PPI signs are pointing down or at least low increases for construction inputs in 2023
Be careful when referencing the 2023YTD. YTD is the growth so far this year. That is growth AFTER December. That does not represent the growth from the avg 2022. As an example, using Inputs to Nonres, the average growth in 2022 was 15.7%. That could be expressed as a starting Jan index of 100, a Jul 1 index of 115.7 and an ending Dec index of 131.4. The average of all 12 months in 2022 = 115.7, the average being at midyear. Well by averages the midyear index would be 115.7. The 2023YTD index is 2.6% since December (131.4) not 2.6% added to 115.7. This really highlights why it is much better to track the index than to report the percentage.
The last column, YTD vs 2022avg, gives an indication of 2023 avg if current YTD costs remain constant for the remainder of the year.
PPI TABLES UPDATED 5-19-23
Final Demand PPI, or Selling Price, represents contractors bid price to client. Includes labor, material, equipment, overhead and profit. Labor includes change in wages and productivity. Every three months (Jan, Apr, Jul, Oct) BLS performs an update survey to correct these Final Demand indices. For the past six quarterly updates, about 80% to 90% of the change in the index was posted in the update month. Therefore, Final Demand indices should not be referenced monthly. These are quarterly indices. January is an update month. PPI Final Demand for Jan index is basically the correction for Nov and Dec. The index should NOT be compared mo/mo. Compare qtr/qtr, but make sure to use the correct update month with two other months, (Jan +Dec+Nov)/(Oct+Sep+Aug) The table shows the slowing progression from a 20% annual rate of gain for all of 2022 (avg nonres bldgs), to 2% the last two qtrs to only 0.1% the last qtr. Slowing is good. The last column, YTD vs 2022avg, gives an indication of 2023 avg if current YTD costs remain constant for the remainder of the year.
PPI TABLES UPDATED 5-19-23
UPDATED 5-19-23 PPI Final Demand Inputs show Q3 and Q4 2022 trend lower each quarter but an increase in Q1 2023. Final Demand shows most indices trending lower since Q2 2022.
The final demand PPI index for 2022 nonresidential buildings is substantially higher than Construction Analytics nonresidential buildings cost index reported in the index tables. These PPI values are but one of the references used to develop construction analytics building cost index.
Current and predicted Inflation rates updated 1-18-23:
- 2020 Rsdn Inflation 4.5%, Nonres Bldgs 2.6%, Non-bldg Infra Avg -0.3%
- 2021 Rsdn Inflation 13.9%, Nonres Bldgs 7.4%, Non-bldg Infra Avg 7.9%
- 2022 Rsdn Inflation 16.1%,Nonres Bldgs 12.9%, Non-bldg Infra Avg 13.8%
- 2023 Rsdn Inflation 1.9%, Nonres Bldgs 4.0%, Non-bldg Infra Avg 4.3%
Current and predicted Inflation updated to Q4’22 3-3-23
- 2020 Rsdn Inflation 4.5%, Nonres Bldgs 2.4%, Nonbldg Infra -0.3%
- 2021 Rsdn Inflation 14.0%, Nonres Bldgs 8.0%, Nonbldg Infra 7.9%
- 2022 Rsdn Inflation 15.8%, Nonres Bldgs 12.2%, Nonbldg Infra 13.8%
- 2023 Rsdn Inflation 2.2%, Nonres Bldgs 4.8%, Nonbldg Infra 4.7%
Construction Analytics Building Cost Index and other industry references
Tables and Plots updated to Q4’22 2-6-23:
In the table above, dividing the current year by the previous year will give the current year inflation rate. All indices are the average rate for the year.
Also in the tables above, all reference indices data is gathered, then all are normalized to a common base, 2019 = 100. This allows to see how different indices compare.
How to use an index: Indexes are used to adjust costs over time for the effects of inflation. An index already compounds annual percent to prevent the error of adding annual percents. To move cost from some point in time to some other point in time, divide Index for year you want to move to by Index for year you want to move cost from, TO/FROM. Costs should be moved from/to midpoint of construction, the centroid of project cost. Indices posted here are at middle of year and can be interpolated between to get any other point in time.
Tables and Plots updated to Q4’22 2-6-23:
Tables and Plots updated to Q4’22 2-6-23:
Tables and Plots updated to Q4’22 2-6-23:
4-21-23 This table and plot is an extension of the tables and plots above. Data is as of Q4 2022, but the table covers from 1967 to 2000. Data is pretty sparse.
Previous year Construction Inflation 2022 – updated 12-10-22
Previous year PPI Tables 2022 Producer Price Index to NOV’22
Links to Data Sources Construction Inflation >>> Links
PPI Tables 2022 Producer Price Index to NOV’22
PPI tables show input costs and final costs monthly to nonresidential buildings and residential. Here I use that information to track year-to-date (ytd). SEE the latest information at the bottom of this post.
January Inputs PPI is up 2.6% in nonresidential and 3.3% for residential. Most of the inputs reported here are up less than 2% YTD, but Lumber/Plywood is up 15%. Final costs of contractors is up 1% to 5% and final cost of buildings is up 3% to 6%. SEE also Construction Inflation 2022
3-23-22 update Input Costs through February 2022 to nonresidential buildings up 4.5% year-to-date, residential up 6.4%. Inputs to residential went up 3.0% in Feb. In a typical year of 4% inflation, costs would increase only 0.25% to 0.50% per month. Residential is up 6%+ after the first two months! Most of the inputs reported here are up less than 2% for February, except Lumber/Plywood up 4.1% and Aluminum up 6.2%. Year-to-date, for two months, Lumber/Plywood is up 20% and aluminum is up 12.1%. Watch copper, up 4.9% ytd, for potential world situation interfering with supply. Final costs of contractors and final cost of buildings changed very little in February. Range is mostly up 2% to 4% ytd, but up to 6% year-to-date. 4-12-22 edited, corrections.
4-13-22 update > Input Costs through March 2022 to nonresidential buildings up 7.5% year-to-date, to residential up 9.5% ytd. In a typical year of 4%-5% inflation, costs would increase only 0.25% to 0.50% per month. Residential is now up 9% after the first 3 months of 2022! Keep in mind when reading these year-to-date (YTD) results, these are cumulative for 1st quarter 2022. That’s not a guess at year end results.
The only inputs reported here up more than 2% for March are Lumber/Plywood, up 5.1%, and Aluminum, up 6.2%. Year-to-date, for 3 months, Lumber/Plywood is up 26% and aluminum is up 19.1%. Watch copper, up 7.2% ytd, for potential world situation interfering with supply. Final costs of contractors and final cost of buildings changed very little in February or March. The final cost average of 5 building types is up 5.2% ytd in the first 3 months of 2022.
The PPI inputs through the 1st quarter is putting pressure on the nonres bldgs index for 2022 to move higher than forecast.
5-8-22 Correction to 2020 and 2021 Totals
I had taken the 2020 and 2021 totals from the AGC PPI reports. However, all analysis by Construction Analytics reports inflation as the annual average. AGC reports the annual growth as the December value, so compares Dec to previous Dec. That does not represent annual growth. For example, some costs in 2021 maintained a level 3% annual growth rate for 9 months then rapidly increased to 9% in the final 3 months. AGC reports the annual growth at 9%, whereas the annual average is 4%. Inflation rate reporting must be consistent, you cannot mix Dec/Dec and annual average. Therefore, all PPI data has been edited using the original source data from Bureau of Labor Statistics.
5-12-22 Construction PPI for April Construction Inputs post slowest monthly gains so far this year.
Nonresidential Inputs up 0.9% in Apr, up 10.0% YTD. Residential Inputs up 0.8% in Apr, up 15.6% YTD
Final Demand (Selling Price) Nonres Bldgs post strong gains in 1st 4 months, up 4.1% in April, up 9.0% ytd. Warehouses up 12% ytd.
6-14-22 Construction PPI for MAY Construction Inputs to residential post, for second consecutive month, slowest monthly gains so far this year.
May PPI data for construction > Big gainers from 2021 have slowed in 2022, Lumber, Steel, Sheet Metal, Rubber/Plastics, Copper. New gainers in 2022 are Ready Mix Conc, Conc Pipe, Paving Mixtures, Gypsum. We could see the same levels of inflation as last year, just from different products.
Final Demand pricing is updated every 3-4 months. Just had a major revision in April, some items increased by 50-75%. May increases look low, but the next revision month could change that, as did April. Better to look at this indicator quarterly, after the revision month.
7-14-22 Construction PPI for JUNE Construction Inputs to residential down for thrid consecutive month.
June PPI data for construction > Biggest gain in June is Deisel Fuel, up 14.1%, up 93.8% year-to-date. Biggest decline is Lumber/Plywood, down 14.7% in June, now down 1.9% ytd.
Final Demand (Selling Price) of nonresidential buildings and trades continues to climb, buildings on average up 0.5% in June, up 9.5% ytd, trades up 1.0% for June, up 8.1% ytd.
In this June report, there are many instances where FRED has revised number in previous 2022 months, mostly in the prior two months, but in some cases back to January. So, the year-to-date change from May to June will not match the May ytd previously reported x the June change.
8-12-22 Construction PPI for JULY Construction Inputs to residential down for third consecutive month.
July PPI data for construction > Biggest gainers in July – Ready Mix Concrete posts largest monthly gain of the year, up 2.7%. Now up 9% in 7 months, also up 9.3% compared to same 7 mo 2021. Biggest decliner – Diesel Fuel, down 16% for the month. Now up 62% for first 7mo of 2022, but up 77% compared to same 7mo in 2021.
Final Demand (Selling Price) of nonresidential buildings and trades continues to climb, buildings on average up 6.2% for 2nd quarter (M,J,J), up 12% ytd. Trades up 5.7% for Q2, up 12.5% ytd.
Material Inputs PPI represents change in cost of producing those materials. Average material cost is about 50% of final bldg cost. But with several margins tacked on before install, PPI $ represents less than half of final bldg cost, perhaps 40%.
Final Demand PPI, or Selling Price, represents contractors bid price to client. Includes labor, mtrl, equip, overhead and profit. Labor includes change in wages and productivity. Every three months (Jan, Apr, Jul, Oct) BLS performs an update survey to correct these Final Demand indices. For the past three quarterly updates about 80% to 90% of the change in the index was posted in the update month. Therefore, they should not be referenced monthly. These are quarterly indices.
9-14-22 Construction PPI for AUGUST
Construction Inputs to nonresidential buildings dropped for the second consecutive month after posting only a 0.4% increase in June, now down -2.4% for the past three months, but still up 9.8% year-to-date. Residential inputs are down for the fourth consecutive month, down -4.4% since April, up 10.1% ytd. Costs are still high, but are moving in the right direction after 1st quarter costs that averaged +10% to +15%. Historically, most cost increases are posted in the 1st quarter and the least in the 4th quarter.
Average of all inputs for nonresidential buildings is up 18.6% for eight months 2022 compared to the same months 2021. Avg inputs for residential compared to 2021 is up 14.9%
- Ready Mix Concrete, up 7 of 8 months, ytd is up10.2%
- Lumber/Plywood, down 4 of the last 5 months a total 28%, ytd down -6.7%
- Fab Str Steel, down -2.1% the last two months, up 11.5% ytd
- Diesel Fuel, down -28% in last 2mo, up 43% ytd
PPI $ represents less than half of final bldg cost, perhaps 40%.
It will take two more months before we see the effect these changes have on Final Demand PPI, which is updated every three months. Next update is to October data released mid-Nov. Every three months (Jan, Apr, Jul, Oct data) BLS performs an update survey to correct these Final Demand indices. For the past three quarterly updates about 80% to 90% of the change in the index was posted in the update month. Therefore, they should not be referenced monthly. These are acting like quarterly indices.
10-14-22 Construction PPI for SEPTEMBER
Construction Inputs to nonresidential buildings dropped for the third consecutive month after posting only a 0.4% increase in June, now down -3.1% for the past three months, but still up 9.5% year-to-date. Residential inputs are down for the fourth consecutive month, down -6.0% since April, up 8.3% ytd. Several major cost components have been on decline the last few months: Lumber/Plywood, Steel Mill Products, Fabricated Steel, Steel Pipe and Tube, Aluminum and Diesel Fuel. Costs are still high, but are moving in the right direction after 1st quarter costs that averaged +7% (28%annual) to +8%. Historically, most cost increases are posted in the 1st quarter and the least in the 4th quarter.
Costs for the last four quarters for all inputs for nonresidential buildings are up 12.5%. Avg inputs for residential for the last four quarters are up 9.7%. The average cost for the last 4 quarters (last 12 months) for the 15 input products I track is up 13.9%.
- Ready Mix Concrete, up 10.7% year-to-date (YTD), up11.6% last 12 months.
- Lumber/Plywood, up 30% in Q1 but down 11.4% ytd, up 9.1% last 12 months
- Fab Str Steel, up 11.2% ytd, up 16.6% last 12 months
- Diesel Fuel, down -17% in 2 of last 3mo, up 60% ytd, up 66% last 12 months
PPI $ represents less than half of final bldg cost, perhaps 40%.
Final Demand PPI is updated every three months. Next update is to October data released mid-Nov when we will see the third quarter, Aug-Sep-Oct, for 2022. Every three months, (Jan, Apr, Jul, Oct data), BLS performs an update survey to correct these Final Demand indices. For the past six quarterly updates about 80% to 90% of the change in the index for the previous quarter was posted in the update month. Therefore, they should not be referenced monthly. Two months are extremely low to the average and the third month is extremely high. Also, the January index is an update month, so most of the index reported that month refers to Nov and Dec, so should not be counted in 2022. Therefore, I chose to report the quarters as reported and updated by BLS. The quarters are FMA, MJJ, ASO, NDJ.
11-15-22 Construction PPI for OCTOBER 2022
Since June, PPI Input costs have been in decline. However Final Demand costs lag and have not posted any declines in at least the last 6 quarters.
Construction PPI Data for Oct’22 > Inputs to Nonres Bldgs UP 9.5%ytd, 12.4% last4qtr. Inputs to Rsdn UP 7.6%ytd, 9.2% last4qtr
FRED corrects Final Demand values quarterly, Jan,Apr,Jul,Oct. Oct value corrects entries for Aug&Sep. Most recent qtr lowest in last4qtrs.
Final Demand PPI is updated every three months. October Final Demand data released mid-Nov represents the correction value for the third quarter, Aug-Sep-Oct. Every three months, (Jan, Apr, Jul, Oct data), BLS performs an update survey to correct these Final Demand indices. For the past six quarterly updates about 80% to 90% of the change in the index for the previous quarter was posted in the update month. Therefore, they should not be referenced monthly. Two months are extremely low to the average and the third month is extremely high. Also, the January index is an update month, so most of the index reported that month refers to Nov and Dec, so should not be counted in 2022. Therefore, I chose to report the quarters as reported and updated by BLS. The quarters are FMA, MJJ, ASO, NDJ.
12-10-22 Construction PPI for NOVEMBER 2022
Since June, PPI Input costs have been in decline. However Final Demand costs lag and have not posted any declines in at least the last 6 quarters. PPI Input$ represent only about 30% to 40% of Final Demand cost.
Construction PPI Data for Nov’22 > Inputs to Nonres Bldgs UP 9.2% ytd, 12.5% last4qtr. Inputs to Rsdn UP 8.2% ytd, 9.3% last4qtr.
For the last 6 months Inputs to nonresidential construction are down -3.0% and to residential are down 5.9%.
FRED corrects Final Demand values quarterly, Jan, Apr, Jul, Oct. Oct value corrects entries for Aug & Sep. Most recent qtr lowest in last4qtrs. We will not get another reliable indicator to Final Demand cost until January when FRED will issue the corrections to Nov and Dec.
Final Demand PPI is updated every three months. October Final Demand data released mid-Nov represents the correction value for the third quarter, Aug-Sep-Oct. Every three months, (Jan, Apr, Jul, Oct data), BLS performs an update survey to correct these Final Demand indices. For the past six quarterly updates about 80% to 90% of the change in the index for the previous quarter was posted in the update month. Therefore, they should not be referenced monthly. Two months are extremely low to the average and the third month is extremely high. Also, the January index is an update month, so most of the index reported that month refers to Nov and Dec, so should not be counted in 2022. Therefore, I chose to report the quarters as reported and updated by BLS. The quarters are FMA, MJJ, ASO, NDJ.
PPI TRENDS
A few years back I looked at PPI historical data. This is what I found.
- 60% of the time, the highest increase of the year in the PPI is in the first quarter.
- 75% of the time, two-thirds of the annual increase occurred in the first six months.
- In 25 years, the highest increase for the year has never been in Q4.
- 60% of the time, the lowest increase of the year in the PPI is in Q4.
- 50% of the time, Q4 is negative, yet in 25 years the PPI was negative only four times.
Since the onset of the pandemic, Feb 2020, residential construction inflation is up 33%, nonresidential up 20%. If you are a residential contractor, take 33% off the top of your revenue growth from Feb20 to Nov22. What remains is your business volume growth. Is your business growing?
Current and predicted Inflation rates updated 12-10-22:
- 2020 Rsdn Inflation 4.5%, Nonres Bldgs 2.6%, Non-bldg Infra Avg -0.3%
- 2021 Rsdn Inflation 13.9%, Nonres Bldgs 7.4%, Non-bldg Infra Avg 7.8%
- 2022 Rsdn Inflation 15.4%, Nonres Bldgs 12.2%, Non-bldg Infra Avg 13.6%
- 2023 Rsdn Inflation 6.0%, Nonres Bldgs 4.8%, Non-bldg Infra Avg 4.3%
October Record Increase to Construction Inflation 11-10-21
What’s the Construction Inflation rate?
From Sept to Oct construction materials input price changes were normal, but Final Demand prices for October increased in one month by what could be considered an entire year’s increase. We’ve been watching the price pass thru catch up slowly, until now.
This is the single largest monthly increase in Final Demand pricing since final demand records began in 2006. Prior to this, based on changes in recent months, I expected future cost increases to add on slowly. So I wasn’t expecting the huge jump all at once. This may be some increases that were occurring over a few months that finally got captured in the index.
In October, the Final demand cost for Buildings and Trades averaged +12% year-to-date. In July, August and September it was between 5% and 6%. A change like this in one month has never occurred before. In fact, this one-month change is greater than any annual change on record. So, it resets the baseline for all forecasts.
For Oct, Nonresidential Buildings 2021 inflation is estimated at 6.8% and Residential at 15%. The forecast for 2022 is estimated at 4.5% for nonresidential buildings inflation and 7% for residential. See inflation and PPI data on my blog for more.
It must be noted that huge jump in nonresidential buildings inflation may not yet be picked up in many of the industry indices that we reference. Construction Analytics BCI is now updated to include the 11-10-21 PPI final demand inflation. Some sources update only quarterly, some semi-annually. After this event, I would expect to see a change in most other sources, which may update sometime over the next quarter.
One important thing, when inflation turns out to be higher than you thought, that means productivity is lower than you thought.
See Inflation – PPI data Jun to OCT Updated 11-10-21
Also see 2021 Construction Inflation – updated 11-10-21
Inflation – PPI data Jun to OCT Updated 11-10-21
7-15-21 Final demand pricing is still well below materials price increases. However, it’s hard to visualize how more of the cost does not get passed on to consumer. I’m expecting future reports will show final cost inflation increasing.
11-10-21 Got That ^ right.
10-14-21 My current forecast for inflation in 2021 is now 4.5% for nonresidential buildings and 13% for residential. Residential inflation seems to have slowed but nonresidential is headed towards 5%.
11-10-21 Final Demand Bldgs and Trades prices for October gained a year’s worth of increase (6.5%) in one month for Oct. This is the largest monthly increase on record back to the start of these series, 2006.
11-16-21 My current forecast for inflation in 2021 is now 6.5% for nonresidential buildings and 14% for residential. I expected to see some increase, just not this much. The PPI reports give the first clues to pass thru costs.
See the most recent inflation comments 2021 Construction Inflation updated 10-15-21
Most years, inflation climbs at a steady rate. 2021 could end up being a year in which inflation is drastically different in one or two quarters vs the entire year.
8-13-21 As expected, many Final Demand prices surged in July by 1.5% to 2%.
10-14-21 Final Demand Trades prices up again since July. Some Buildings increased. Wood products have come way down, but almost every other material product has gone up, metals way up.
11-10-21 From Sept to Oct materials price changes were normal, but Final Demand prices jumped what could be considered an entire year’s worth of increase in just one month. We’ve been watching the price pass thru increase slowly, until now. This is the single largest monthly increase in Final Demand pricing that I can remember.
Construction Inflation 2021
This post, originally written in Jan 2021, and updated several times, is viewed over 1,000 times a week.
>>> 2-1-23 SEE Construction Inflation 2023
2-11-22 SEE Construction Inflation 2022
See Feb 2022 note below and updated table at bottom of file.
10-15-21 update – Link to PPI data from Jul to Sep. Table PPI Inputs Sep21. Updated BCI plot.
As of Sept 2021, PPI for materials inputs to construction is up ytd 15% to 18%. For the 18 months since March 2020, the onset of Pandemic, the PPI for materials inputs to construction is up ytd 23%, but the PPI Buildings Cost Index for final cost to owner is up only 5% to 6%. (Part of this can be attributed to periodic PPI forecast updates).
As of 10-15-21, nonres bldgs inflation for 2021 is estimated at 4.6% and residential at 12.9%. Those increases are reflected in the tables and plots below. Both have been trending up.
11-10-21 From Sept to Oct materials price changes were normal, but Final Demand prices jumped what could be considered an entire year’s worth of increase in just one month. We’ve been watching the price pass thru increase slowly, until now. This is the single largest monthly increase in Final Demand pricing since the indices were started in 2006.
As of 11-10-21, nonres bldgs inflation for 2021 is estimated at 6.8% and residential at 15%. The 2022 forecast is estimated at 4.5% for nonres bldgs inflation and 7% for residential.
As of Jan 2022, not all nonresidential sources have updated their Q4 inflation index. A few are still reporting only 4% inflation for 2021, but several have moved up dramatically, now reflecting between +10% to +14%. My estimate for 2021 inflation has been changing, moving up again. Nonres bldgs inflation for 2021 is currently estimated at 8.7% and residential at 15%. Graphs in this post are not yet updated. The 2015-2023 table of indices has been updated 1-20-22.
2-10-22 Here’s a list of 2021 indices average annual change and date updated.
- +8.4% Construction Analytics Nonres Bldgs Dec
- +14.1% PPI Average Final Demand 5 Nonres Bldgs Dec 2021
- +11.4% PPI average Final Demand 4 Nonres Trades Dec
- +1.9% Turner Index Nonres Bldgs annual avg 2021 Q4 2021
- +4.84% Rider Levett Bucknall Nonres Bldgs annual avg 2021 Q4
- +12.6% Mortenson Nonres Bldgs annual avg thru Q3 2021
- +11.7% U S Census New SF Home annual avg 2021 Dec
- +7.4% I H S Power Plants and Pipelines Index annual avg 2021 Dec
- +7.1% BurRec Roads and Bridges annual avg 2021 Q4
- +6.0% FHWA Fed Hiway annual avg 2021 Q4
- +9.11% R S Means Nonres Bldgs Inputs annual avg 2021 Q4 2021
- +10.0% ENR Nonres Bldgs Inputs annual avg 2021 Dec
- +7.2% Ready Mix Concrete Inputs Dec
- +16.4% Lumber/Plywood Inputs Dec
- +46% Fabricated Steel Inputs Dec
- +39% Sheet Metal Inputs Dec
- +21% Gypsum Products Inputs Dec
- +9.6% Flat Glass Inputs Dec
- +23% Copper Products Inputs Dec
- +55% Aluminum Products Inputs Dec
The 2022 forecast is estimated at 4.5% for nonres bldgs inflation and 7% for residential.
Construction Spending Update 10-1-21
Construction Jobs Outlook 10-11-21 read the section on impact of inflation
Inflation – PPI data June-Sept 2021 some materials up 20%-40% but final cost up only 5%-6%
8-15-21 update – These links at top here point to most recent inflation data, to supplement this post. The latest construction spending forecast reflects inflation of 4-6% for nonresidential and 12-13% for residential. The latest tables and BCI plot, as of 8-15-21, are at the very bottom in this file. All 2021 indices have increased since my May 2021 Inflation Report. These tables have the latest.
Also See Construction Inflation Report May 2021 for downloadable report
1-25-21 What impacts should we expect on Construction Inflation in 2021?
In April 2020, and again in June 2020, I recommended adding a minimum 1% to normal long-term construction inflation (nonres longterm inflation = 3.75%), to use 4% to 5% for 2020 nonresidential buildings construction inflation. Some analysts were suggesting we would experience deflation. Deflation is not likely. Only twice in 50 years have we experienced construction cost deflation, 2009 and 2010. That was at a time when business volume was down 33% and jobs were down 30%. In 2020, volume dropped 8% from Feb to May and we’ve gained half that back by Dec. Jobs dropped 14%, 1,000,000+ jobs, in two months! Now volume is still down 4% and jobs are down 2% from Feb peak. We’ve gained back 850,000 jobs. But also, we’ve gained back more jobs then volume. That adds to inflation.
Volume drops another 5% in 2021, all nonresidential, and then another 3% in 2022. Jobs could drop overall 8%-10% for all of 2021-2022, 500,000 to 700,000 jobs.
Even though material input costs are up for 2020, nonresidential inflation in 2020 remained low, probably influenced by a reduction in margins due to the decline in new construction starts (-24%), which is a decline in new work to bid on.
Volume = spending minus inflation.
Residential business volume dropped 12% from the January 2020 peak to the May bottom, but has since recovered 22% and now stands at a post Great Recession high, 10% above one year ago. Although residential spending remains near this high level for the next year, volume after inflation begins to drop by midyear. For the year 2020, Residential Building Materials Inputs are up 6.2%. See PPI charts. Sharply higher lumber prices have added more than $17,000 to the price of an average new single-family home since mid-April ($24,000 as of 3-30-21). Residential inflation averaged 5.1% for 2020. (UPDATE 3-30-21 – Single Family home prices increased 11% since March 2020. Lumber cost is now 3x what it was in March 2020. These will both impact cost to build SFH).
10-15-21 – The U.S. Census Single-Family house Construction Index increased 6.7% from Feb 2020 to Feb 2021. Since February 2021 through August it is up another 8.5% for the last 6 months. https://www.census.gov/construction/nrs/pdf/price_uc.pdf
Nonresidential volume has been slowly declining and is now down 8.5% from one year ago. I had forecast by 3rd quarter 2021, nonresidential buildings volume would be down 15% lower than December 2020, or 25% below the Feb 2020 peak. It’s down 5.5% from Dec’20 and down 23% from the Feb’20 peak. This tracks right in line with the 24% decline in new construction starts in 2020. Most of the spending from those lost starts would have taken place in 2021, now showing up as a major decline in spending and work volume. Nonresidential inflation for 2020 dropped to 2.5%, the first time in 7 years below 4%. It’s expected to increase in 2021.
The Producer Price Index tables published by AGC for year-end 2020 https://www.agc.org/sites/default/files/PPI%20Tables%20202012.pdf shows input costs to nonresidential buildings up about 3.5% to 4.5% for 2020, but final costs of contractors and buildings up only 1% to 2%. This could be an indication that, although input costs are up, final costs are depressed due to lower margins, a result of fewer projects to bid on creating a tighter new work available environment which generally leads to a more competitive bidding environment. This could reverse in 2021 as the volume of work to bid on in most markets begins to increase.
As of Sept 2021, PPI for materials inputs to construction is up ytd 15% to 18%. For the 18 months since March 2020, the onset of Pandemic, the PPI for materials inputs to construction is up ytd 23%, but the PPI Buildings Cost Index for final cost to owner is up only 5% to 6%. Construction inflation is very different right now for subcontractors vs general contractor/CM.
11-10-21 From Sept to Oct materials price changes were normal, but Final Demand prices jumped in just one month what could be considered an entire year’s worth of increase. We’ve been watching the price pass thru increase slowly, until now. This is the single largest monthly increase in Final Demand pricing that I can remember. In part, the disparity between these two indices is a data collection issue in how Census gets this information. The Oct increase in the Final Demand index represents several months of growth, all reported at once. Final demand indices are just catching up.
This October 2021 increase is not yet reflected in any other building cost inflation index.
PPI data for Jun – Oct Updated 11-10-21
The Turner Construction 2020 Cost Index for nonresidential buildings averaged 1.8% higher than the avg for all of 2019. The Turner index appears to show the lowest gains in forecasts for 2021, up only 1.4% ytd though Q2. http://turnerconstruction.com/cost-index
The Rider Levitt Bucknall nonresidential buildings average index for 2020 increased 3.5%. Q3 2021 compared to Q3 2020 is up 5.5%. https://www.rlb.com/americas/
R.S.Means quarterly cost index of some materials for the 4th quarter 2020 compared to Q1: Ready-Mix Concrete -1.8%, Brick +10%, Steel Items -1% to -5%, Framing Lumber +32%, Plywood +8%, Roof Membrane +5%, Insulating Glass +12%, Drywall +3%, Metal Studs +23%, Plumbing Pipe and Fixtures +1%, Sheet Metal +20%. https://www.rsmeans.com/landing-pages/2020-rsmeans-cost-index
U.S. manufacturing output posts largest drop since 1946. Think of all the manufactured products that go into construction of a new building: Cement, steel, doors, frames, windows, roofing, siding, wallboard, lighting, heating systems, wire, plumbing fixtures, pipe, valves, cabinets, appliances, etc. We have yet to see if any of these will be in short supply leading to delays in completing new or restarted work.
There have been reports that scrap steel shortages may result in a steel cost increase. Scrap steel prices are up 27% in the last quarter and up 40% for the year 2020. Scrap is the #1 ingredient for new structural steel. The U.S. steel industry experienced the most severe downturn since 2008, as steelmakers cut back production to match a sharp collapse in demand and shed workers. Capacity Utilization dropped from 82% in January 2020 to 56% in April. In mid-August, CapU was up to 61%, still very low. As of January 23, 2021 CapU is up to 76%, well above April’s 56% but still below desired level. Steel manufacturing output is still down compared to pre-covid levels. Until production ramps back up to previous levels there may be shortages or longer lead times for delivery of steel products. In August 2021, CapU is back to 85%.
Steel Prices at mill in the U.S. are up 60% to 100% in the last 6 months. All prices are 50% to 75% higher than Feb 2020. http://steelbenchmarker.com/files/history.pdf . This is mill price of steel which is about 25% of the price of steel installed. What affect might a steel cost increase have on a building project? It will affect the cost of structural shapes, steel joists, reinforcing steel, metal deck, stairs and rails, metal panels, metal ceilings, wall studs, door frames, canopies, steel duct, steel pipe and conduit, pumps, cabinets and furniture, and I’m sure more. Assuming a typical structural steel building with some metal panel exterior, steel pan stairs, metal deck floors, steel doors and frames and steel studs in walls, then all steel material installed represents about 14% to 16% of total building cost. Structural Steel only, installed, is about 9% to 10% of total building cost, but applies to only 60% market share being steel buildings. The other 6% of total steel cost applies to all buildings. https://www.thefabricator.com/thefabricator/blog/metalsmaterials/steel-prices-reach-levels-not-seen-since-2008 At these prices, if fully passed down to the owner, this adds about 1.5%-2% to building cost inflation. With demand in decline for nonresidential buildings, I would expect to see all these steel price increases recede. Also, take note, as of January 2021, none of this steel price movement appears captured in the PPI data or RSMeans data.
Contractors have been saying they have difficulty acquiring the skilled labor they need. This has led to increased labor cost to secure needed skills. I expect the decline in nonresidential work volume in 2021 to result in as much as a decline of 250,000 nonresidential jobs in 2021. This results in labor available to fill other positions.
This SMACNA report quantifies that labor productivity has decreased 18% to meet COVID-19 protocols. https://www.constructiondive.com/news/study-finds-covid-19-protocols-led-to-a-7-loss-on-construction-projects/583143/ Labor is about 35% of project cost. Therefore, just this productivity loss would equate to -18% x 35% = 6.3% inflation. Even if, for all trades, the average lost time due to COVID-19 protocols is only half that, the added inflationary cost to projects is 3% above normal. But that may not remain constant over the entire duration of the project, so the net effect on project cost would be less.
Post Great Recession, 2011-2020, average nonresidential buildings inflation is 3.7%. In 2020 it dropped to 2.5%, but for the six years 2014-2019 it averaged 4.4%. Residential cost inflation for 2020 reached 5.1%. It has averaged over 5% for the last 8 years. The 30-year average inflation rate for nonresidential buildings is 3.75% and for residential it’s over 4%.
This survey of members by AGC https://www.agc.org/sites/default/files/2021_Outlook_National_1221_.pdf just published provides some insight into construction firms outlook for 2021.
Almost every construction market has a weaker spending outlook in 2021 than in 2020, because approximately 50% of spending in 2021 is generated from 2020 starts, and 2020 nonresidential starts are down 10% to 25%, several markets down 40%. Nonbuilding starts are down 15%, but will increase 10% in 2021.
Typically, when work volume decreases, the bidding environment gets more competitive. We can always expect some margin decline when there are fewer nonresidential projects to bid on, which typically results in sharper pencils. However, if materials shortages develop or productivity declines, that could cause inflation to increase. We can also expect cost increases due to material prices, labor cost, lost productivity, project time extensions or potential overtime to meet a fixed end-date.
Constant $ plot updated 10-14-21
Constant $ = Spending minus inflation = Volume
Many projects under construction had been halted for some period of time and many experienced at least short-term disruption. The delays may add either several weeks to perhaps a month or two to the overall schedule, in which case, not only does labor cost go up but also management cost goes up, or it could add overtime costs to meet a fixed end-date. Some of these project costs have yet to occur as most would be expected to add onto the end of the project.
Some projects that were put on hold (nonresidential buildings starts in 2020 dropped 24%) just prior to bidding in 2020 may now re-enter the bidding environment. The rate at which these projects come back on-line could impact the bidding environment. If several months worth of projects that delayed bidding last year all come onto the market at once, or at least all in a more compressed time span than they would have, the market could be flooded with work and bidding contractors now have more choice, can bid more projects than normal and could potentially raise margins in some bids. This would have an inflationary effect. Also, there can be difficulty in starting many projects at the same time, rather than more staggered starts. It burdens subcontractors and suppliers with too much of the same type of work all going on at the same time. This could exacerbate labor issues and could lead to project time extensions.
The hidden inflationary costs of bidding environment, project time extensions, potential overtime and lost productivity haven’t all yet appeared in the data. Some of these could still add to 2020 inflation. Also, the huge loss of new starts in 2020, which meant fewer projects to bid on in 2020, probably reduced margins in 2020. Nonresidential starts are projected to increase 4% in 2021, so that could lead to some recovery of margins, however, even with 4% growth in new starts, that comes after a 24% drop in 2020, so remains still 20% below 2019. Total volume of work is declining and new projects available out to bid is still depressed, so pressure on margins still exists.
update 4-15-21 Although materials cost inflation will be higher, I expect non-residential buildings inflation final cost in 2021 to range between 3.5% to 4.0%, with potential to be held lower. Subcontractor costs, such as for steel or lumber, could range much higher due to huge material cost increases. All the downward pressure on nonresidential inflation is on margins. There is currently 20% less nonres bldgs work to bid on than in Q1 2020.
updated 3-30-21 Expect 2021 residential inflation of 6% to 8% with potential to push slightly higher.
See Construction Inflation Index Tables for indices related to Nonbuilding Infrastructure work and for more links to sources.
(10-15-21 The tables and plot below include updated residential costs and updated nonresidential inputs).
The tables below, from 2011 to 2020 and from 2015 thru 2023, updates 2020 data and includes Q3 PPI data thru Sept and provides 2021-2023 forecast. The three sectors, highlighted, are plotted above.
NOTE, these tables are based on 2019=100.
The following table shows 2021 updated as of 10-15-21 reflecting 4.6% inflation for nonresidential buildings and 13% for residential.
As of 10-14-21, nonres bldgs inflation is estimated at 4.6% and residential at 12.9%. Those increases since August are reflected in these tables.
11-10-21 From Sept to Oct materials price changes were normal, but Final Demand prices jumped what could be considered an entire year’s worth of increase in just one month. We’ve been watching the price pass thru increase slowly, until now. This is the single largest monthly increase in Final Demand pricing that I can remember. Prior to this I expected future cost increases to add on slowly. This changes the entire outlook.
11-10-21 Construction Analytics and PPI Data have been updated for 2021, 2022 and 2023. Other firms forecasts will be updated when they post, so there may be differences. For example CA 2021 index for nonres bldgs now reflects a +6.5% annual increase. Turner Q3 2021 is still indicating just +3%.
11-10-21 Nonres bldgs inflation for 2021 is estimated at 6.8% and residential at 15%. The 2022 forecast is estimated at 4.5% for nonres bldgs inflation and 7% for residential. Increases to CA and PPI since Sept are reflected in this table.
As of Jan 2022, not all nonresidential sources have updated their Q4 inflation index. A few are still reporting only 4% inflation for 2021, but several have moved up dramatically, now reflecting between +10% to +14%. My estimate for 2021 inflation has been changing, moving up again. Nonres bldgs inflation for 2021 is currently estimated at 8.7% and residential at 15%. Graphs in this post are not yet updated. The 2022 forecast is estimated at 4.5% for nonres bldgs inflation and 7% for residential.
The 2015-2023 table of indices has been updated 2-10-22. However, there is still some potential for 2021 data to move higher.
How to use an index: Indexes are used to adjust costs over time for the affects of inflation. To move cost from some point in time to some other point in time, divide Index for year you want to move to by Index for year you want to move cost from. Example : What is cost inflation for a building with a midpoint in 2021, for a similar nonresidential building whose midpoint of construction was 2016? Divide Index for 2021 by index for 2016 = 108.2/87.0 = 1.24. Cost of building with midpoint in 2016 x 1.24 = cost of same building with midpoint in 2021. Costs should be moved from/to midpoint of construction. Indices posted here are at middle of year and can be interpolated between to get any other point in time.
All forward forecast values, whenever not available, are estimated by Construction Analytics.
Also See Construction Inflation Report May 2021
Also See Construction Inflation Index Tables the post for links to dozens of other indices
Producer Price Index Year-to-date June & July 2020
7-14-20 updated 8-28-20
Producer Price Index selected items year-to-date through June 2020. All values compare most recent June pricing to December 2019. Pricing represents 6-month change, not annualized change.
- -2.5% Inputs to new nonresidential construction
- -0.9% Inputs to new residential construction
- +1.0% Final demand construction
- -0.4% New Warehouse Bldg
- +1.2% New School Bldg
- +0.7% New Office Bldg
- +1.4% New Industrial Bldg
- +1.4% New Healthcare Bldg
- New work on nonresidential buildings
- +0.7% Concrete contractors
- +1.8% Roofing contractors
- +1.4% Electrical contractors
- +1.2% Plumbing contractors
- Selected Material Inputs
- -42.0% #2 Diesel fuel
- +2.7% Ready Mix Concrete
- +1.3% Precast concrete products
- +1.3% Flat Glass
- +0.1% Gypsum products
- +6.1% Lumber and Plywood
- -5.7% Steel pipe and tube
- -11.5% Aluminum mill shapes
- +2.2% Fabricated structural metal
- +10.3% Fabricated structural metal bar joists and reinforcing bars
- +11.9% Fabricated structural metal for non-industrial buildings
- -3.7% Fabricated structural metal for bridges
- -2.2% Fabricated steel plate
- +1.6% Iron and steel scrap
AGC does not publish year-to-date values. The data in this post is the combined effect of comparing June to March and March to December.
Here’s the link to AGC PPI reports for all months
8-28-20 There were some pretty dramatic changes in July in the Producer Price Index selected items year-to-date. Edited here, all values compare most recent JULY pricing to December 2019. Pricing represents 7-month change, not annualized change.
- -1.0% Inputs to new nonresidential construction ytd through JULY
- +1.0% Inputs to new residential construction ytd through JULY
- +1.6% Final demand construction ytd through JULY
- +1.0% New Warehouse Bldg
- +1.8% New School Bldg
- +1.7% New Office Bldg
- +2.2% New Industrial Bldg
- +2.2% New Healthcare Bldg
- New work on nonresidential buildings ytd through JULY
- +0.5% Concrete contractors
- +2.2% Roofing contractors
- +1.7% Electrical contractors
- +0.7% Plumbing contractors
- Selected Material Inputs ytd through JULY
- -24.0% #2 Diesel fuel
- +2.8% Ready Mix Concrete
- +1.3% Precast concrete products
- +1.2% Flat Glass
- +0.3% Gypsum products
- +13.8% Lumber and Plywood
- -5.5% Steel pipe and tube
- -10.0% Aluminum mill shapes
- -1.0% Fabricated structural metal
- +0.8% Fabricated structural metal bar joists and reinforcing bars
- +0.4% Fabricated structural metal for non-industrial buildings
- +1.4% Fabricated structural metal for bridges
- +2.7% Fabricated steel plate
- -2.8% Iron and steel scrap
PPI Materials Prices YTD June 2019
Price changes listed here are year-to-date 2019 through June. Change is for 6 months YTD, not annualized. As a reminder, the Producer Price Index (PPI) DOES NOT include imports (imports are not produced in the US) or tariffs. Only pricing for domestically produced materials is included. That would include any decisions domestic producers make influenced by tariffs on imported products.
Prices for years prior can be found PPI Construction Materials Inputs Index
Construction PPI Excludes Imports and Tariffs
When assessing or tracking the pricing affect of tariffs on construction materials, you need to understand that the Producer Price Index (PPI) does not include imports (imports are not produced in the US) or tariffs. See items 4 and 24 in the FAQ provided by the Bureau of Labor Statistics. Construction PPI changes reflect pricing decisions domestic producers make on domestic products in reaction to tariffs on imported products. Tariffs have big impact on domestic prices.
BLS explanation of method and definitions
The price change we see in the PPI for construction materials reflects the domestic material prices of ALL other domestically produced materials used in the industry. While tariffs may affect only 10% of products used in the industry the PPI shows us the domestic producers reaction applied to the other 90%.
For example: Steel tariffs of +25% applied only on imported steel, affected only 30% (the imported share) of steel used in US. However the PPI shows us that all other domestically produced steel in the US and used in construction increased in price between 12% and 22% in 2018. Prices of domestic steel have receded somewhat, now ranging from +7% to +13%. But the point is that tariffs caused a price increase also in domestic steel.
AGC Tables of Construction PPI
The cost of ALL DOMESTIC steel mill products (of all types) produced in the US increased 18% in 2018 after the steel tariffs were imposed. That is domestic producers pricing response in reaction to tariffs. Tariffs impacted pricing decisions on all domestically produced products, not just the imported products. The increase has since receded but is still up 10%. Consumers pay the price.
Inflation and Forecasting Presentation Advancing Precon & Estm Conf 5-22-19
This is a PDF of slides (including notes) from my
Construction Inflation & Forecasting Presentation
at Hanson Wade
Advancing Preconstruction & Estimating Conference
Dallas, TX 5-22-19
Advancing Pre-construction & Estimating conference 2019
Full EdZ Presentation Inflation-Forecasting w notes HW-APE 5-22-19 PDF
Construction Analytics 