April 14, 2011 – Contractors’ financial position grew more precarious in March as prices for key materials escalated while prices construction firms charge for completed projects stayed flat, according to an analysis of producer price index figures released today by the Associated General Contractors of America (AGC). Association officials said contractors’ inability to pass costs along imperils the industry’s comeback and urged federal officials to act on a series of recovery measures the group outlined last month.
“Construction spending has sunk to 1999 levels, forcing contractors to
keep bid prices down to win projects, despite huge price increases for
key inputs,” said Ken Simonson, the association’s chief economist. “That
steadily widening gulf threatens to put construction firms out of
business and their employees out of work.”
Prices for materials used in construction soared 2.0 per cent in March
and 6.9 percent during the past 12 months, while price indexes for
finished buildings were flat for the month and year, the economist
noted. He added that construction materials costs rose faster than the
producer price index for finished goods, which climbed 5.8 per cent from
March 2010 to March 2011.
Simonson said price increases were most extreme for diesel fuel and
metals. Diesel prices leaped 11 per cent in March and 42.5 percent for
the year; prices for copper and brass mill shapes sank 6 per cent in
March but still jumped 17 percent year-over-year; steel mill product
prices increased 5.3 percent and 15 percent, respectively; and prices
for aluminum mill shapes rose 1.9 percent and 12 percent, respectively.
“Shrinking demand for both public and privately financed construction is
driving up the number of contractors bidding on projects and forcing
contractors to hold the line on bid prices for all types of projects,”
Simonson noted. The producer price indexes for new office, industrial
and warehouse construction rose 1 percent or less over 12 months and the
index for new schools was up just 1.3 percent. A new Federal Highway
Administration index for highway construction bid prices plunged 22
percent between 2008 and the end of 2010, he added.
Association officials said the new data demonstrates the urgency for
public officials to act on a series of measures the group outlined last
month in its recovery plan, “Building a Stronger Future.” “Without
stronger demand for construction, particularly private sector
construction activity, economic growth will leave out a vital sector,
stranding millions of workers,” said Stephen E. Sandherr, the
association’s chief executive officer.
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