Huge jumps in prices for diesel fuel and copper—two key inputs to construction—pinched contractors in November as weak demand for construction forced them to hold down bid prices despite the cost increases, according to an analysis of November producer price index figures released Dec. 14 by the Associated General Contractors of America. Prices for materials used in construction climbed 0.5% in November and 4.8% over the past 12 months, while price indexes for finished buildings remained flat over both time periods. The PPI for finished goods went up 0.4% for the month and 3.5% year-over-year.
“These price jumps, along with further increases since PPI data were collected in mid-November, could be the last straw for some hard-pressed contractors,” said Ken Simonson, the association’s chief economist. “With unemployment in construction running at 18.8% in November—double the all-industry average—any more business failures will only add to the industry’s misery.”
Simonson noted that prices shot up 5.6% in November and 16% over the past 12 months for copper and brass mill shapes, 4.8% and 18%, respectively, for diesel fuel, and 3.5% and 14% for aluminum mill shapes. “Since these data were collected in mid-November, prices have risen further for all of these materials, and steel makers have also announced hefty increases,” Simonson stated.
“Contractors have been unable to recoup these costs in what they charge,” Simonson added. “Indexes for new office, school, warehouse and industrial buildings were virtually unchanged both for the month and over 12 months. Prices charged by concrete, roofing, electrical and plumbing contractors showed very small movements in either direction.”
Contractors are likely to be squeezed by rising materials prices and flat prices for completed projects for the foreseeable future, Simonson predicted. He forecasted that contractors would experience periods of simultaneous price spikes in multiple materials in 2011 as the U.S. and foreign economies pick up speed.
“Unfortunately, demand for construction will be erratic for months to come, worsening the price pinch that has already devastated too many firms and their workers,” Simonson concluded.