Prices for non-residential building materials are falling in Minnesota and beyond in the post-pandemic world, but that good news is dampened in part by rising labor costs, according to a new report from Mortenson Construction.

The Mortenson Construction Cost Index for the second quarter of 2023 reflects market conditions in various categories, including the cost of labor and materials. Cities covered in the report include Minneapolis, Milwaukee, Seattle, Chicago, Denver, Phoenix and Portland, Oregon.

In Minneapolis, non-residential construction prices increased 1.52% from the first quarter to the second quarter. This is slightly lower than Chicago (+1.9%) and Denver (+1.87%), but higher than Milwaukee (+0.96%) and Portland (-0.15%).

Nationwide, non-residential construction costs increased 1.28% from the first quarter to the second quarter. Over the past 12 months, cost increases have slowed to 2.9% nationally and 1.4% in Minneapolis.

Clark Taylor, chief estimator at Mortenson Construction, said the construction industry would continue to see some price swings from month to month, but “not like in 2021 and 2022, every material was going up at a very high rate”.

The supply chain issues and long lead times that have kept builders awake during the pandemic are less of a concern. Supply chains that “were mostly broken a couple of years ago, have kind of been rebuilt and are in good shape,” Taylor said.

However, labor costs rose 5.5% year-on-year, as construction workers compete against a tight supply of workers.

“Although the industry has had a historically low unemployment rate of 4.6% in 2022, the construction industry is expected to need an additional 546,000 workers in addition to its normal hiring pace in 2023 due to a lack of people entering the labor market and a disproportionate number of workers exiting. “. workforce,” the report states.

The report notes that higher interest rates continue to be an “economic headwind,” adding that the Fed raised the federal funds rate to a 22-year high, increasing the cost of funds needed to start construction.

However, the report says that construction in the United States remains in “positive territory” as of the second quarter of 2023. Construction activity is supported in part by federal investments in green energy, manufacturing, and infrastructure projects.

Some of the manufacturing is coming back to the US, which is clearly a good thing, and some projects are in energy, Taylor said. “We’re now seeing a large number of projects building solar modules here in the US. These are big projects and these jobs are very labor intensive.

Meanwhile, construction price watchers watch for weather-related events, such as wildfires in Canada and a severe drought in China, which could have an impact on lumber prices and hydropower production.

“We haven’t seen any of that yet, but it’s possible that Canadian mills won’t be operating at full capacity, which could drive up prices,” Taylor said.

In a separate economic report, the American Institute of Architects said on Wednesday that business conditions for US design firms stabilized in July.

The American Institute of Architects (AIA) / Deltek Architecture Billings (ABI) Index for July came in at 50.0, meaning billings at architecture firms remained flat for the month. Any score above 50 indicates an increase in billing.

“This is the third month in a row that invoices have been flat at architecture firms,” ​​Kermit Baker, AIA’s chief economist, said in a statement. “Work on the new project has been stronger during this period. This suggests that design work may finally start to ramp up over the coming months, although it is rather modest.

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