While there are well-reported economic headwinds, including high inflation, increasing interest rates, and slowing rates of project planning, the economy continues to show signs of resiliency, including historically low unemployment, a downward trend in the rate of inflation, and a leveling-off of interest rate increases. Construction material pricing is likewise a mixed bag. Ready-mix concrete and concrete masonry units (CMU) continue to increase in price and remain difficult to source, while the price and availability of other materials, such as steel and wood, have improved.
Inflation & Interest Rates
Inflation and rising interest rates remained one of the greatest challenges for both the construction market and our broader economy as 2022 ended. The good news is that the 12-month change in the Consumer Price Index (CPI), a common measure of inflation, steadily declined from 8.3% in August to 8.2% in September, 7.7% in October, and 7.1% in November. The 12-month change in the CPI for the Atlanta area likewise decreased from 11.7% in August to 10.7% in October. In other words, we continue to trend in the right direction. The bad news is that inflation remains elevated nationally and even higher locally.
The Federal Reserve continued its inflation fight in the fourth quarter with its main weapon: making money more expensive to borrow. After implementing a fourth consecutive 0.75% interest rate increase in November, the Fed raised rates only 0.50% in December. During 2022, in total, the Federal Reserve raised interest rates 4.25%. The Fed stated in December that it anticipates continuing to raise interest rates and that it is “strongly committed to returning inflation to its 2 percent objective.”
SOURCES: U.S. Bureau of Labor Statistics; Board of Governors of the Federal Reserve System
Material Input Costs | Ready-Mix Concrete
Concrete prices continued to rise, and ready-mix concrete remained difficult to obtain, in the fourth quarter. The average price in northeast Georgia for standard, 3,000 psi, ready-mix concrete was $161.66 per cubic yard, a 27% year-over-year (YOY) increase. By the end of the year, pricing from some suppliers eclipsed $170 per cubic yard. Ready-mix suppliers expect another $10 to $15 per cubic yard increase in the first quarter of 2023.
Concrete masonry units (CMU) likewise rose in price, and were difficult to obtain, throughout 2022. On April 15, 2022, the primary supplier of CMU in northeast Georgia implemented a 9% CMU price increase and began adding a transportation fuel surcharge on all orders. The same supplier implemented another 3% price increase on September 1, 2022. Finally, CMU prices rose another 12% effective January 1, 2023. In total, the cost of CMU, one of the most common commercial wall construction materials, rose over 24% in the last year.
SOURCES: Ernst Concrete; Smyrna Ready Mix; Argos; Morgan Concrete; Georgia Masonry Supply