Construction Industry Grapples with Rising Materials Prices

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Construction contractors continue to be squeezed by rising prices for key construction materials and flat prices for what they can charge for finished projects, according to an analysis of October Producer Price Index figures released this week by the Associated General Contractors of America. Prices for materials used in construction jumped by 0.6 percent in October and 4.8 percent over the past 12 months, while the price index for finished buildings remained flat.

“As if declining demand and dramatic layoffs weren’t enough, the construction industry also has to pay more for key materials while charging the same for finished projects,” said Ken Simonson, the association’s chief economist. “This squeeze is likely to force firms to shut their doors, compounding the already staggering 17.3 percent unemployment rate for the sector.”

Simonson noted that prices in October soared for a range of key construction materials. For example, the price of diesel fuel is up 7.2 percent since September and 20 percent since October 2009. Copper and brass mill shapes are up 5.4 percent for the month and 15 percent for the year. The price of steel mill products is up 1.4 percent since September and 12 percent over the past 12 months.

Prices for some construction materials, however, remained flat or declined slightly this past month, Simonson added. Concrete prices were unchanged from the previous month and down 0.4 percent from the previous year. Gypsum products declined by 0.2 percent since September but were unchanged from October 2009. Prices for asphalt paving mixtures and blocks dropped 0.5 percent in October but were still 4.8 percent higher than last year. And lumber and plywood prices declined 0.9 percent since September but rose 6.7 percent during the past 12 months.

Contractors are likely to continue to be squeezed by rising materials prices and flat prices for completed projects for the remainder of the year, Simonson predicted. He added that contractors will be vulnerable to sudden price spikes in multiple materials in 2011 as the U.S. and foreign economies gradually recover.

“Unfortunately, demand for construction will likely remain weak for several more months, exacerbating the price squeeze that has already taken a toll on many firms and far more workers,” Simonson noted.

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