Climbing prices for key building materials could be edging some contractors closer to insolvency, a major industry association is warning.
Andrew Dunn / Wikimedia Commons
|Producer price indexes for lumber, concrete, steel and other common building components spiked in August and September, according to the Associated General Contractors of America.|
The producer price indexes for lumber, concrete, steel, and other materials, as well as other contractor consumables like diesel fuel increased by 0.9 percent in August and September, the Associated General Contractors of America (AGC) reported this week in an analysis of Census Bureau data.
One bright spot: The architectural coatings producer price index remained unchanged in September, AGC reported.
“The latest surge in materials costs may push subcontractors and some general contractors into insolvency, following years of razor-thin margins and shrunken levels of activity,” said the association’s chief economist, Ken Simonson. “Most contractors have no ability to pass on unexpected cost increases.”
Despite the “surge” in price points, the year-over-year changes in materials prices are mild, according to the AGC.
The price increases for materials follow several months of declining prices, so that the year-over-year change in the index for materials was a “deceptively mild 1.7 percent,” Simonson added.
Prices spiked for several key construction materials in September, while the indexes that reflect what contractors would charge for their work were largely unchanged, according to Simonson.
Diesel fuel jumped 5.7 percent in September, following a leap of 8.7 percent in August, AGC reported.
Prices for copper and brass mill shapes increased 3.6 percent in September. The indexes for aluminum mill shapes and lumber and plywood each rose 1.1 percent in the latest month, while the price of steel mill products increased 1.0 percent.
In contrast, however, the price indexes for finished nonresidential buildings—measuring what contractors estimate they would charge to put up new structures—were mixed for the month, Simonson said. So were the indexes for subcontractors’ work.
The index for new industrial buildings decreased 0.2 percent from August to September, while the index for new school construction slipped 0.1 percent for the month.
But the indexes for new office and warehouse construction were unchanged, as were indexes reflecting prices charged by concrete, electrical and plumbing contractors for new, repair and maintenance work on nonresidential buildings.
The index for roofing contractors was the only nonresidential building index to show an increase for the month (0.3 percent).
Public Investment Criticized
Association officials said inadequate public investment in infrastructure was a major reason why contractors were often unable to recover costs.
“With so few projects to bid on, contractors are offering their services with little or no margin to cover materials costs,” said Stephen E. Sandherr, the association’s CEO.
He noted recent Census Bureau data showing a 3.5 percent drop in public construction spending from August 2011 to August 2012.
“Despite the tepid recovery, the construction industry continues to suffer from tight margins and weak demand,” said Sandherr. “That is why federal, state and local agencies must keep funding intact for construction, or they will have even worse problems with unemployment and shuttered businesses.”
Tables from AGC’s report are available here.