Cost of Construction Materials Continues to Climb 0.9 Percent in January, Contractor Group Reports
February 17, 2011

The prices contractors must pay for many essential construction materials continued to increase in January, even as the amount they charge for completed projects remains flat, according to an analysis of January producer price index figures released by the Associated General Contractors of America (AGC). Association officials noted that the price trends are cutting into already tight bottom lines for contractors, undermining chances for an industry-wide recovery in 2011.

“The last thing contractors need after two years of depression-like conditions is to pay more to make less,” said Ken Simonson, the association’s chief economist. “With margins continuing to shrink, few contractors are likely to benefit even if construction demand picks up this year.”

According to Simonson, prices for materials used in construction jumped 0.9 percent in January and 4.9 percent during the past 12 months, while price indexes for finished buildings barely changed during the same timeframe. He added that construction costs also outstripped the producer price index for finished goods, which rose 0.8 percent during the past month and 3.6 percent since January 2010.

Weak demand for both public and privately-financed construction, which is driving up the number of contractors bidding on projects, is forcing contractors to hold the line on bid prices, Simonson noted. The producer price index for new industrial and warehouse construction was virtually unchanged, inching up only 0.2 percent in the month and 0.6 percent (industrial buildings) and 0.7 percent (warehouses) for the year. Meanwhile, the producer price for new office construction was up only 0.2 percent for the year, despite a 1.0 percent increase in January.

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