Construction-material costs were flat in April, AGC says
Nonresidential projects rise in price slightly faster than the overall marketMay 24th, 2012
The cost of construction materials took a breather in April, while contractors showed slightly greater ability to roll past price increases into their bids, says an analysis of producer price index figures released this month by the Associated General Contractors of America. Association officials noted that despite the temporary reprieve from materials-price hikes, market conditions for construction remain difficult.
"Contractors caught a bit of a break on major input costs in April, enabling some firms to make up for recent price spikes," says Ken Simonson, the association's chief economist. "However, workloads remain uneven by segment and geographical region, leaving many firms very vulnerable to unexpected price hikes for key materials."
Simonson says there was a rise of 0.1 percent in April and 2.5 percent over 12 months in the producer price index for inputs to constructiona weighted average of the cost of materials used in all types of projects, plus items contractors consumed, such as diesel fuel. That was the smallest year-over-year increase since early 2009, he says.
There have been slightly larger increases in the indexes for new nonresidential buildings, which are a measure of what contractors estimate they would charge to put up a new building, Simonson says. He points to increases of 0.5 percent for the month and 4.3 percent over 12 months for new-school construction; 0.5 percent and 4.0 percent, respectively, for new warehouse construction; 0.6 percent and 3.2 percent for industrial buildings; and 0.1 percent and 3.2 percent for offices.
Prices moderated in April for a variety of materials, some of which had experienced large jumps earlier in the year, Simonson says. For instance, the price index for diesel fuel dropped 0.9 percent for the month and 0.1 percent year over year. The price index for gypsum products, such as wallboard leapt 14 percent in the first quarter of the year, but fell 1.9 percent in Aprilalthough it remained 11.5 percent higher than in April 2011.
The biggest monthly and year-over-year decreases among key materials occurred in the price index for copper and brass mill shapes, which tumbled 2.7 percent and 11.4 percent, respectively.
Association officials said that while improvement in the price indexes for finished buildings is a positive sign, it will do little to help construction firms working in the public sector, where the volume of projects has been declining. They added that because most firms have to guarantee their bids months before knowing what they will have to pay for materials, the industry remains particularly vulnerable to future price spikes.
"Until Washington finalizes a number of long-delayed infrastructure measures, public-sector demand for construction is likely to continue to decline," says Stephen E. Sandherr, the association's chief executive officer. "With less work available, firms working on public projects will be particularly susceptible to price spikes."