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Too Early to Tell Whether Construction Prices Will Keep Pace with Rising Materials Prices Given Declining Public Sector Demand for Construction, Weak Private Sector Demand

The amount contractors pay for construction materials and charge for completed projects both increased in July, as firms were finally able to charge more for work, according to an analysis of producer price index figures released today by the Associated General Contractors of America. Association officials said, however, that it was too early to tell whether contractors will continue to be able to raise prices in the face of declining public sector investments in construction.

“Contractors will have a hard time increasing, or even holding the line on bid levels if the federal government continues to cut investments in infrastructure and construction,” said Stephen E. Sandherr, the association’s chief executive officer. “That being said, anyone looking for a good deal for new construction should act now in case prices continue to increase.”

The index for new construction – what contractors charge for construction projects – increased between 1.0 and 1.3 percent in July and from 2.3 to 3.1 percent for the year, depending on building type. With the exception of school construction, the monthly increases are at their highest rate of growth in two years, and the annual increases for all types of new construction are all at two-year highs.

Sandherr noted that the producer price index for all construction materials increased by 0.3 percent in July and 8.9 percent over the past 12 months. Contractors got some relief, however, from rising diesel prices in July, as prices declined by 1.8 percent for the month, yet diesel prices are still 49.9 percent higher than a year ago. Meanwhile, prices for copper ores experienced the highest rate of increase in July, 7.0 percent, and are up 33.9 percent for the year.

Prices rose sharply in July for a number of other key materials, including copper and brass mill shapes (5.6 percent for July, 33.6 percent for the year); prepared asphalt and tar roofing and siding products (2.4 percent for the month, 4.8 percent for the year) and plastic resins and materials (2.1 percent for the month, 14.2 percent for the year).

Citing the fact that construction programs have already accounted for more than 50 percent of federal budget cuts for fiscal year 2012, association officials said declining public sector investments would make it hard for contractors to continue raising prices. “Deferring needed investments in the nation’s aging infrastructure will make it even harder for contractors to cope with rising materials prices and undermine the kind of private sector economic activity the industry is counting on to help it recover,” said Sandherr.

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