Material Prices Jump 0.9 Percent in December; Bids Stay "Flat"
January 13, 2011

Construction firms faced increasing pressure in December as nearly every material used by contractors rose in price, while bid prices for new buildings remained flat, according to an analysis of December producer price index figures released by the Associated General Contractors of America. Association officials warned that the price squeeze on contractors is likely to intensify in 2011 as global demand for construction materials grows and domestic demand for construction services remains weak.

"Bad though these numbers are, there is worse to come," said Ken Simonson, the association's chief economist, noting that since the data was compiled, suppliers have announced further price increases for copper, steel and diesel fuel. "With contractors unable to pass along the increases in the price of finished buildings, many firms could be pushed out of business," says Simonson.

He pointed out that prices for materials used in construction jumped 0.9 percent in December and 5.4 percent in all of 2010, while price indexes for finished buildings remained flat over both time periods. He added that construction costs also outstripped the producer price index for finished goods, which rose 0.6 percent in December and 4.0 percent in 2010.

Simonson also said that even as materials prices rise, weak demand for construction, combined with intense competition for work, is forcing contractors to hold the line on bid prices. The producer price index for new office construction actually dropped 0.8 percent in the month and year. The index for new industrial buildings was flat in December and up 0.4 percent in 2010 as a whole; new warehouses, up 0.1 percent and 0.4 percent; and new schools, flat and up 1.3 percent.

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