The Associated General Contractors of America has reported that prices on key construction materials continue to rise. September 2012 marked the second month in a row where prices spiked.
“The latest surge in materials costs may push subcontractors and some general contractors into insolvency, following years of razor-thin margins and shrunken levels of activity,” said Ken Simonson, chief economist for the construction trade association. “Most contractors have no ability to pass on unexpected cost increases.”
The producer price index for inputs to construction increased 0.9 percent in both September and August, while the indexes that reflect what contractors would charge for their work were largely unchanged. The price increases for materials follow several months of declining prices, so that the year-over-year change in the index for materials was a “deceptively mild 1.7 percent,” said Simonson.
The economist cited rising prices for a variety of essential construction materials as responsible for the recent spike. The price index for diesel fuel jumped 5.7 percent in September, following a leap of 8.7 percent in August. Prices for copper and brass mill shapes climbed 3.6 percent in September. The indexes for aluminum mill shapes and lumber and plywood each rose 1.1 percent in the latest month, while the price of steel mill products increased 1 percent.
AGC officials said inadequate public investment in infrastructure is a major reason contractors are unable to recover costs.
“With so few projects to bid on, contractors are offering their services with little or no margin to cover materials costs,” said Stephen E. Sandherr, the association’s chief executive officer, noting that recent Census Bureau data showed a 3.5 percent drop in public construction spending from August 2011 to August 2012. “Despite the tepid recover, the construction industry continues to suffer from tight margins and weak demand. That is why federal, state and local agencies must keep funding intact for construction, or they will have even worse problems with unemployment and shuttered businesses.”