Materials Costs Rise as Construction Index Ticks Up in 2Q

The nonresidential construction index report (NRCI) ticked up in 2016’s second quarter, driven by improvements in the overall and local economies where construction industry executives conduct the most business. Notably, the uptick in activity and associated demand for materials means most suppliers are selling their products to contractors at higher prices.

The NRCI increased to 61.3 in the second quarter, up from 55.6 the previous quarter, according to construction industry management consulting firm FMI, which conducts the quarterly report. The index, of which a reading exceeding 50 indicates expansion, shows that outlooks for commercial, education, health care, lodging, manufacturing and office projects all increased in the second quarter.

“That is a solid recovery, and almost every component of the NRCI moved in a positive direction this quarter,” FMI concluded. “The main exceptions are the costs of labor and construction materials, which are holding down the rise in the NRCI score.”

The index for the cost of construction materials fell 13 points in the second quarter to 25.2, which is an indication that are contractors are seeing higher prices, FMI said. Approximately 51% of survey respondents reported that construction materials’ costs rose from last quarter, 47.6% said they were the same, and 1.4% found price easing from the previous quarter.

However, the three-year business outlook for commercial construction projects dropped to 45.6 this quarter from the previous reading of 45.7, keeping both readings below the expansion threshold. Projects related to education, healthcare and manufacturing did improve, remaining above the contraction/expansion dividing line, FMI said.

- Nicholas Stern, editorial associate

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