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Construction Industry Squeezed by Prices

Construction Industry Squeezed by Prices

November 16, 2010
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Ken Simonson, the chief economist of the Associated General Contractors of America, said today that prices for key construction materials continue to go up, squeezing construction contractors. Simonson is one of the panelists for MDM's upcoming 2011 Economic Forecast, a webcast that is available on DVD.

As echoed in many publications, including the Wall Street Journal, some commodity prices have been climbing lately due to a variety of factors, including demand from emerging economies and concern for potential shortages as companies ramp production back up.

Today the October Producer Price Index figures were released (see those here), showing that prices for materials used in construction jumped by 0.6 percent in October and 4.8 percent over the past 12 months. 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,” he said in a press release. “This squeeze is likely to force firms to shut their doors, compounding the already staggering 17.3 percent unemployment rate for the sector.”

He noted a few key materials: The price of diesel fuel is up 7.2 percent since September (no doubt having an impact on other sectors, as well) 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. And the price of steel mill products is up 1.4 percent since September and 12 percent over the past 12 months.

MDM recently released its third quarter Inflation by Commodity Group report, which uses the PPI to show wholesale pricing trends for 56 product groups in a range of sectors. Read that report here.

Simonson did say today that prices for some materials were flat or declined slightly, including concrete, gypsum, asphalt paving mixtures and blocks, and lumber and plywood.

His forecast? Contractors are likely to continue to be squeezed by rising materials prices and flat prices for completed projects for the remainder of the year.

Learn more about the 2011 Economic Forecast, an MDM Webcast on Dec. 9 that is also available on DVD.

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