AGC economist says price declines may be short lived.
According to an analysis of producer price index figures released by the Associated General Contractors of America (AGC), the amount contractors pay for a range of construction materials edged down 0.3 percent in May, 2012 and climbed by only 2.3 percent from a year earlier. Meanwhile, the amount contractors charge to construct projects remained largely flat for the month and is up only between 3.1 and 4.3 percent for the year.
“The slowdown in construction input price increases is a rare and possibly short-lived event,” says Ken Simonson, AGC’s chief economist, noting that the last time prices rose so slowly from a year earlier was February 2010. “Meanwhile, some of the price increases we are seeing for materials like gypsum and lumber reflect a strengthening new residential and commercial remodeling construction.”
Simonson notes that prices for a number of key construction materials declined between April and May. The price index for diesel fuel dropped 3.6 percent in May and is down 0.2 percent compared to last year. The index for copper and brass mill shapes declined 1.6 percent for the month and 8.3 percent since May 2011. Likewise, aluminum mill products dropped in price for May by 1.9 percent and fell 9.0 percent from a year earlier. Meanwhile, the index for gypsum products increased by 1.2 percent in May and 13.6 percent compared to last year while lumber prices rose by 2.2 percent for the month and 7.0 percent since May 2011.
The price indexes for finished non-residential buildings, which measure what contractors estimate they would charge to put up new structures, inched up for the past month and are beginning to outpace increases in construction materials prices, Simonson notes. The index for new industrial buildings declined 0.1 percent in May and is up only 3.1 percent for the year. The index for new office construction inched up 0.2 percent for the month and 3.4 percent for the year. The price for new warehouse construction also increased by 0.2 percent in May and rose 4.2 percent compared to May 2011. And the price for new school construction was up 0.1 percent for the month and 4.3 percent for the year.
The construction economist added that materials prices are likely to remain moderate for the time being, based on recent reports and future market pricing for diesel fuel, copper and steel. Simonson attributed the slowdown to weakening demand from Europe, as well as China and other developing nations.
Association officials said the new pricing data shows that now is a good time for public and private sector owners to start construction on needed projects. “The price break makes this an ideal time for both private sector owners and government agencies to start construction,” says Stephen Sandherr, AGC’s CEO. “Taxpayers will get a good deal if Congress can complete work soon on long-stalled highway and transit funding, and avoid making further cuts to building and infrastructure construction projects while prices are still relatively low."