Zack Fritz, economist with the Associated Builders & Contractors, discusses the current state of construction materials prices and how interest rates have influenced the industry.
Transcription
Jack Kopanski: Looking at inflation and interest rates and how that impacts the construction industry. Obviously, construction materials prices is a big way that that kind of can impact or maybe hinder the industry. How have you seen, or what maybe different ways have you seen inflation and interest rates affect the construction industry over the first three quarters? And do you anticipate that inflation coming down slowly but surely lowering interest rates? How do you expect that to sort of impact the industry positively the rest of this year and into next year?
Zack Fritz:Yeah, so actually, construction materials prices have been very tame this year. Actually, according to today’s PPI release, they’re actually down year over year, which is great news. They’re still up 40 percent since the start of the pandemic, that’s a good deal faster than overall inflation. So, materials are still expensive, but it’s kind of baked in. We’re not seeing these increases anymore. And I think that’s good. The industry needs that, especially with borrowing costs so elevated.
How have interest rates affected the construction industry? It’s an obvious headwind. You know, they always talk about long and variable lags, which is another way of saying, we’re not quite sure how long it takes for them to impact the industry, but it certainly has. Some of that has kind of been hidden when you take a more holistic view, because of all this momentum in data centers and manufacturing mega projects. It certainly hurt private construction volumes. It’s not clear how quickly they’ll rebound as rates come down. You know, we’ve seen on the residential side, I think people thought that rates falling down to the low sixes would cause a real uptick in home buying. We haven’t quite seen that yet.
So on the non residential side, it’ll certainly help to have lower borrowing costs, looser lending standards, but it could be a little while before we see that effect show up in the construction spending data.
Featured Photo: P&Q Staff
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