Construction materials costs are rising faster than recent producer price reports suggest, according to Ken Simonson, chief economist for the Associated General Contractors of America (AGC). “Steel is getting especially hot, and diesel is adding fuel to the inflation fire,” Simonson says, commenting on the March 15 producer price index (PPI) report from the Bureau of Labor Statistics.
“The PPI for construction materials and components edged up only 0.1 percent in February,” Simonson says. “But data for this index was collected on Feb. 13 and there have been some notable price increases occurring or announced since then.”
According to Simonson, steel mills have announced two increases for reinforcing and structure steel, types used widely in highways, buildings, parking structures and other construction. “On March 1, many mills increased prices by $15 per ton. This week, the announced a whopping $55 increase to take effect on April 1. That would make the total increase since January about $100 or nearly 40 percent,” Simonson says.
According to Simonson, citing data from the weekly surveys by the Energy Information Administration, the retail price of diesel fuel has risen 21 cents per gallon in the month since the PPI data was collected. “That hit contractors three ways,” Simonson says.
“Directly in the cost of operating off road machinery and construction trucks and through surcharges on deliveries of materials and equipment to jobsites. The PPI for diesel was up 7 percent in February, and these increases will easily double that,” he says.
Simonson continues, “Asphalt prices, which jumped 14 percent at the refinery level last month, will soon rise for paving and roofing contractors. Paving asphalt also uses a lot of aggregate or crushed stone. That PPI jumped 1.9 percent in February and 3.9 percent in the past three months.”
Simonson says road construction will bear the brunt of these increase, because highway and bridge contractors use so much diesel, asphalt, steel for bridges and guardrails, and concrete, which is also rising in price. “Other heavy and building construction will also feel the pain. In contrast, falling gypsum prices and a multi-year drop in lumber prices are holding single-family homebuilding costs. The catch there is nobody is putting up houses,” Simonson says.
More information is available at www.agc.org.