Construction sector continues to be slowed

High material prices and flat project pay-outs disturbing combination for contractors

News Associated General Contractors of America November 16, 2010
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Construction contractors continue to be squeezed by rising prices for key construction materials and flat prices for what they can charge for finished projects, according to an analysis of October Producer Price Index figures released Nov. 16 by the Associated General Contractors of America. Prices for materials used in construction jumped by 0.6% in October and 4.8% over the past 12 months, while the price index for finished buildings remained flat.

“As if declining demand and dramatic layoffs weren’t enough, the construction industry also has to pay more for key materials while charging the same for finished projects,” said Ken Simonson, the association’s chief economist. “This squeeze is likely to force firms to shut their doors, compounding the already staggering 17.3% unemployment rate for the sector.”

Simonson noted that prices in October soared for a range of key construction materials. For example, the price of diesel fuel is up 7.2% since September and 20% since October 2009. Copper and brass mill shapes are up 5.4% for the month and 15% for the year. The price of steel mill products is up 1.4% since September and 12% over the past 12 months.

Prices for some construction materials, however, remained flat or declined slightly this past month, Simonson added. Concrete prices were unchanged from the previous month and down 0.4% from the previous year. Gypsum products declined by 0.2% since September but were unchanged from October 2009. Prices for asphalt-paving mixtures and blocks dropped 0.5% in October but were still 4.8% higher than last year. And lumber and plywood prices declined 0.9% since September but rose 6.7% during the past 12 months.

Contractors are likely to continue to be squeezed by rising materials prices and flat prices for completed projects for the remainder of the year, Simonson predicted. He added that contractors will be vulnerable to sudden price spikes in multiple materials in 2011 as the U.S. and foreign economies gradually recover.

“Unfortunately, demand for construction will likely remain weak for several more months, exacerbating the price squeeze that has already taken a toll on many firms and far more workers,” Simonson noted.

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