Construction Costs Decrease While Contractor Optimism Grows

While Construction Dive reports that “construction costs decrease for first time in ten years,” the Associated Builders and Contractors (ABC) reported last week that its Construction Backlog Indicator rose to 8.1 months in June, an increase of 0.2 months from May’s reading, indicating increased optimism among contractors. 

Construction Dive sites the following reasons as to why construction costs are projected to decrease:

  • A variety of pandemic-related forces have caused construction costs to decline slightly for the first time in a decade, which could lead contractors to feel a pinch in profits.
  • The Turner Building Cost Index, which measures costs in the U.S. nonresidential building construction market, fell to a value of 1177 in the second quarter of 2020, a 1.01% quarterly reduction from the first quarter. This is the first time the index from Turner Construction Co. has reduced in value since 2010.
  • “Trade contractor competition has increased in many areas as they work to secure backlog due to uncertainty they have about future opportunities,” said Attilio Rivetti, the Turner vice president responsible for compiling the Cost Index in a press statement.

“Associated Builders and Contractors’ Chief Economist Anirban Basu echoed Rivetti’s sentiments about competition, saying as a result of the COVID-19 pandemic, “the average construction firm leader is more concerned about demand for their services than any other consideration, including skilled worker shortages.” This means that there are more companies than usual bidding on each available project, which tends to drive construction prices lower. 

ABC’s recent Construction Confidence Index reported that although construction firm executives expect sales to increase over the next six months, they also expect profit margins to become slimmer. The survey indicates that confidence among U.S. construction industry leaders increased regarding staffing levels, profit margins and sales in June. Mr. Basu commented, “The dip in construction costs may also be partly attributable to a decline in the price of some materials, especially energy. And, June construction input costs are down 3.4% compared to the same time last year, although prices have recently stabilized.”

Click HERE for full Construction Dive story.

Click HERE for full ABC News Release.

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