Association says higher prices could hurt contractors.
An analysis of November producer price indexes released by the Associated General Contractors of America (AGC) finds contractors, faced with weak demand, holding down bid prices despite cost increases, according to a release by the AGC.
The AGC release notes that prices for materials used in construction climbed 0.5 percent in November and 4.8 percent over the past 12 months, while price indexes for finished buildings remained flat over both time periods. The PPI for finished goods increased 0.4 percent for the month and 3.5 percent 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,” says Ken Simonson, the association’s chief economist, in the release. “With unemployment in construction running at 18.8 percent in November—double the all-industry average—any more business failures will only add to the industry’s misery.”
Simonson notes that prices shot up 5.6 percent in November and 16 percent over the past 12 months for copper and brass mill shapes, 4.8 percent and 18 percent respectively for diesel fuel, and 3.5 percent and 14 percent 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 adds.
“Contractors have been unable to recoup these costs in what they charge,” Simonson adds. “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 predicts. He forecasts 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.
To view the latest producer price index tables for construction, click here.