Construction Material Costs Outrun Finished Building Prices in June

Construction costs again outpaced other producer prices in June but contractors remained unable to recoup the costs through higher bid prices, according to an analysis of producer price index figures released by the Associated General Contractors of America. Association officials said the ongoing cost squeeze will put new pressure on construction firms to reduce staff and possibly close.

“Despite a one-month dip in the prices of some key materials in June, construction costs rose on a year-over-year basis at the highest rate since 2008,” said Ken Simonson, the association's chief economist. “Worse, prices are rising amid continued layoffs and construction spending levels that hit an 11-year low in May.”

Simonson noted that the producer price index for all construction materials inched down 0.1 percent in June but increased 8.3 percent over the past 12 months, whereas the index for finished goods fell 0.7 percent for the month (0.4 percent, seasonally adjusted) and climbed 7.0 percent over 12 months. Meanwhile, the price of finished buildings was unchanged in June and rose only 2.0 percent or less over the past year, depending on building type.

Simonson said outsized year-over-year price increases for construction were attributable to the indexes for diesel fuel and metals. The index for diesel rose 1.4 percent in June and 50 percent since June 2010. Among key metals, prices for copper and brass mill shape climbed 0.4 percent and 26 percent, respectively; aluminum mill shapes rose 0.4 percent and 17 percent; and steel mill products dropped 1.7 percent in the latest month but increased 7.0 percent from a year earlier.

“All of these materials are in worldwide demand, with supplies that are either tight or threatened by international turmoil,” Simonson commented. “In contrast, materials that go strictly for construction have dropped in price as demand remains weak.” He cited as examples the price indexes for gypsum products such as wallboard, which fell 2.8 percent in June and 7.4 percent over 12 months; lumber and plywood, 0.9 percent and 4.1 percent; and concrete products, 0.1 percent and 0.2 percent.

Association officials said that given the continued economic pressures on the construction industry, Congress and the White House should reconsider planned cuts for infrastructure maintenance that will only increase taxpayer burdens over the long-term. “Allowing our highways, bridges and public structures to degrade will make matters worse for the construction industry and force taxpayers to pay more to fix broken buildings and infrastructure,” said Stephen E. Sandherr, the association's chief executive officer.

View the latest producer price index tables for constructionat http://www.agc.org/galleries/news/PPI.Tables.201106.pdf