Contractors' cost squeeze intensifies in February

Diesel fuel leads soaring producer price figures

News AGC March 18, 2011
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Financial pressures on contractors grew worse in February as prices for key construction materials rose sharply even as prices construction firms charge for completed projects remained stagnant, according to an analysis of producer price index figures released today by the Associated General Contractors of America (AGC). Association officials said the price squeeze will make it harder for the construction industry to recover and urged federal officials to act on a series of recovery measures the group outlined recently.

“With construction spending hovering near a 10-year low, contractors are holding bids steady even while being hit with staggering price increases for key inputs,” said Ken Simonson, AGC’s chief economist. “That combination threatens to add to an already appalling toll of laid-off workers and shuttered construction firms.”

Prices for materials used in construction leaped 1.1% in February and 6.1% during the past 12 months, while price indexes for finished buildings stayed nearly level during the same time frame, the economist noted. He added that construction costs also outran the producer price index for finished goods, which rose 5.6% since February 2010.

Simonson said price increases were particularly intense for four essential construction inputs. Diesel fuel prices climbed 7.1% in February and 40% for the year; prices for copper and brass mill shapes increased 4.5% and 20%, respectively; steel mill product prices rose 4.7% and 13%, respectively; and prices for insulation materials rose 3.5% in February and 6.0% for the year.

Weak demand for both public and privately financed construction, which is driving up the number of contractors bidding on projects, is forcing contractors to hold the line on bid prices, Simonson noted. The producer price indexes for new office, industrial and warehouse construction rose less than 1% over 12 months, and the index for new schools was up just 1.4%.

AGC officials said the new data underscores the need for federal officials to act on a series of measures the group outlined recently in its new recovery plan, “Building a Stronger Future.” “Reviving demand for construction, particularly private-sector construction activity, is essential to sustaining broader economic growth,” said Stephen E. Sandherr, AGC’s chief executive officer.

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