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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 today by the Associated General Contractors of America. 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.
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“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.”
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, the economist noted. 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.
Simonson siad that prices soared at double-digit rates over the year for five key construction materials. Diesel fuel prices climbed 3.2 percent in January and 17.7 percent for the year; steel mill product prices rose 2.0 percent and 11.5 percent respectively; hot rolled boars, plates and structural shapes were up 2.2 percent and 14.3 percent; prices for steel pipe and tube rose 17.8 percent over the year and 2.8 percent in January; and prices for prefabricated metal buildings rose 5.2 percent in January and 12.0 percent for the year.
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 said. 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.
Other items that contributed to the January climb included copper and brass mill shapes, 3.3 percent and 9.9 percent for the month and year respectively; lumber and plywood, 2.0 percent and 7.4 percent; aluminum mill shapes, 1.0 percent and 9.2 percent; and fabricated structural metal, 1.6 percent and 3.1 percent. Prices in January and the year were little changed, or down, for brick and structural clay tile, -2.4 percent and -2.4 percent; concrete products, 0.1 percent and 0.0 percent; and gypsum products, -3.3 percent and 0.5 percent.
Simonson was featured in the recent program: the 2011 Economic Forecast for Manufacturing and Construction.