Latest Producer Price Index Figures Show Construction Materials Cost Increases Outstrip Overall PPI;
Diesel Fuel and Copper Are the Biggest Problems While Steel Increases Loom
Huge jumps in prices for diesel fuel and copper鈥攖wo key inputs to construction鈥攑inched contractors in November as weak demand for construction forced them to hold down bid prices despite the cost increases, according to an analysis of November producer price index figures released today by the Associated General Contractors of America. 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 went up 0.4 percent for the month and 3.5 percent year-over-year.
鈥淭hese price jumps, along with further increases since PPI data were collected in mid-November, could be the last straw for some hard-pressed contractors,鈥 said Ken Simonson, the association鈥檚 chief economist. 鈥淲ith unemployment in construction running at 18.8 percent in November鈥攄ouble the all-industry average鈥攁ny more business failures will only add to the industry鈥檚 misery.鈥
Simonson noted 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. 鈥淪ince these data were collected in mid-November, prices have risen further for all of these materials, and steel makers have also announced hefty increases,鈥 Simonson stated.
鈥淐ontractors have been unable to recoup these costs in what they charge,鈥 Simonson added. 鈥淚ndexes 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.鈥
Contractors are likely to be squeezed by rising materials prices and flat prices for completed projects for the foreseeable future, Simonson predicted. He forecasted that contractors would experience periods of simultaneous price spikes in multiple materials in 2011 as the U.S. and foreign economies pick up speed.
鈥淯nfortunately, demand for construction will be erratic for months to come, worsening the price pinch that has already devastated too many firms and their workers,鈥 Simonson concluded.
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