A monthly report from the Associated General Contractors of America claims that contractors are unable to pass through higher prices due to soft demand.
The most recent report from the Associated General Contractors of America (AGC), Arlington, Va., finds that contractors are being hit with price increases for a host of building products at the same time they are seeing sluggish demand for construction project. The result, the AGC notes, is that more construction employees and firms could end up leaving the construction business unless public officials lower the barriers to public and private investment.
The AGC notes that producer price index figures in May show contractors were paying more for gypsum, asphalt, aluminum, plastic and steel, but were unable to pass the price increases along to their customers.
In analyzing the most recent statistics, Ken Simonson, the AGC’s chief economist, says, “New cost pressures bubbled up in May, even as prices moderated for a few items. Meanwhile, contractors have largely held the line on their bids in order to win work while demand for construction remains tepid at best.”
Simonson notes that the producer price index for all construction materials increased by 0.9 percent in May and 7.5 percent over the past 12 months. The year-over-year figure has accelerated steadily for the past four months, he adds. Meanwhile, the price of finished buildings was flat in May and rose only 1.8 percent or less over the past year, depending on building type.
Simonson said there were substantial price increases in May for wallboard and other gypsum products, which rose 4.3 percent from April; asphalt paving mixtures and blocks, 3.2 percent; aluminum mill shapes, 2.6 percent; construction plastics such as pipe and insulation, 1.8 percent; and steel mill products, 1.1 percent. He adds that two other key materials had price declines for May, but were still far costlier than a year ago: diesel fuel, down 3.2 percent for the month but up 39.5 percent since May 2010, and copper and brass mill shapes, down 4.0 percent since April but up 17.0 percent year-over-year.
“Federal spending on infrastructure is fading fast, while most private demand has yet to pick up,” Simonson comments. “As a result, contractors are being pinched by higher costs they can’t roll into their bids, and many firms are at risk of closing their doors, which would add to the industry’s already-high 16 percent unemployment rate.”
AGC officials say it is vital that Congress and the White House enact long-overdue infrastructure bills and repeal a law that requires all levels of government to begin withholding three percent of payments to contractors by 2013. “Forcing contractors to earn less even as you slash the amount of work available for them to perform is not a good way to boost employment or revive the economy,” says Stephen Sandherr, AGC’s CEO.