Materials prices inch up in April

Market conditions remain difficult, particularly in the public sector

Associations News AGC May 15, 2012
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The cost of construction materials took a breather in April, while contractors showed slightly greater ability to roll past price increases into their bids, according to an analysis of producer price index figures released by the Associated General Contractors of America (AGC). Association officials noted that despite the temporary reprieve from materials price hikes, market conditions for construction remain difficult.

 

“Contractors caught a bit of a break on major input costs in April, enabling some firms to make up for recent price spikes,” said Ken Simonson, AGC’s chief economist. “However, work loads remain uneven by segment and geographical region, leaving many firms very vulnerable to unexpected price hikes for key materials.”

 

Simonson noted that there was a rise of 0.1% in April and 2.5% over 12 months in the producer price index for inputs to construction—a weighted average of the cost of materials used in all types of projects, plus items consumed by contractors such as diesel fuel. That was the smallest year-over-year increase since early 2009, he observed.

 

There have been slightly larger increases in the indexes for new nonresidential buildings, which are a measure of what contractors estimate they would charge to put up a new building, Simonson added. He pointed to increases of 0.5% for the month and 4.3% over 12 months for new school construction; 0.5% and 4.0%, respectively, for new warehouse construction; 0.6% and 3.2% for industrial buildings; and 0.1% and 3.2% for offices.

 

Prices moderated in April for a variety of materials, some of which had experienced large jumps earlier in the year, Simonson noted. For instance, the price index for diesel fuel dropped 0.9% for the month and 0.1% year-over-year. The price index for gypsum products such as wallboard, which leaped 14% in the first quarter of the year, fell 1.9% in April, although it remained 11.5% higher than in April 2011. The biggest monthly and year-over-year decreases among key materials occurred in the price index for copper and brass mill shapes, which tumbled 2.7% and 11.4%, respectively.

 

Association officials said that while improvement in the price indexes for finished buildings is a positive sign, it will do little to help construction firms working in the public sector, where the volume of projects has been declining. They added that because most firms have to guarantee their bids months before knowing what they will have to pay for materials, the industry remains particularly vulnerable to future price spikes.

 

“Until Washington finalizes a number of long-delayed infrastructure measures, public-sector demand for construction is likely to continue to decline,” said Stephen E. Sandherr, the association’s chief executive officer. “With less work available, firms working on public projects will be particularly susceptible to price spikes.”

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