New Federal Data Shows Contractors are Getting
Squeezed Between Rising Materials Costs and Stagnant Prices for
January 21, 2010
Based on analysis of the latest producer price index (PPI) conducted
by the Associated General Contractors of America Construction, contractors
are being squeezed by rising materials costs and disappearing profit
margins. The new figures show finished prices of nonresidential
buildings dropped last year even though a number of construction
materials prices have begun to increase in price, notes Ken Simonson,
the association's chief economist.
"Contractors have not been able to pass on these cost increases,
which is bad news for contractors but good news for anyone looking
to build right away," Simonson states. "Pressure is building
on contractors to raise costs, however, so anyone waiting to build
will pay more."
The PPIs for new nonresidential buildings, which include overhead
and profit as well as materials costs, were flat in December and
fell between 2.4 percent and 4.3 percent for the year, depending
on the type of building, Simonson notes. Meanwhile, the PPI for
inputs to nonresidential building construction, a weighted average
of the materials and diesel fuel used in construction, rose 0.2
percent and 0.4 percent, respectively.
"Contractors are swallowing the materials costs in order to
stay busy," Simonson says, adding that if present conditions
continued for much longer a number of firms are likely to close
up shop, which would cut competition and potentially drive up the
cost of construction services.
A new 2010 construction hiring and business forecast released by
AGC found nearly 9 in 10 contractors do not expect the market to
improve in 2010. As a result, overall economic and employment growth
are likely to lag. The association called on Congress and federal
agencies to take advantage of relatively low construction prices
by moving forward with new infrastructure investments.
"Waiting to make these vital investments will only force taxpayers
to spend more for the kind of infrastructure projects our country
needs to remain globally competitive," says Stephen E. Sandherr,
the association's chief executive officer. He notes that county
and local governments, including D.C.-area Montgomery County, Maryland,
have already realized the need for timely infrastructure investments
and increased their capital budgets. "Congress can boost our
economy, add jobs and get an edge on our competitors by quickly
taking advantage of near record low construction costs," Sandherr
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