Construction Materials Prices Increase in August and Year-to-Year

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The cost of key construction materials increased in August and year-to-year, resuming a trend that has forced contractors to pay more for materials even as competitive pressures restrain prices for finished projects, according to an analysis of federal figures released today by the Associated General Contractors of America.

"After years of depressed construction activity, the last thing contractors need is to see materials price increases further erode their already slim margins," said Stephen E. Sandherr, the association’s chief executive officer. "This isn’t the kind of economic recovery most contractors spent the past few years praying for."

The producer price index for inputs to construction—covering materials that go into every type of project, plus items consumed by contractors such as diesel fuel—increased 0.9 percent in August and 1.0 percent from a year earlier, Sandherr noted. The price increases resume a longer-term trend that is forcing contractors to pay more for materials even as they struggle to raise prices for finished projects, the association official noted.

Sandherr observed that rising prices for several key construction materials produced the latest monthly and year-to-year increases. The price index for diesel fuel jumped 8.7 percent in August and 5.2 percent from a year ago. Prices for gypsum products are up 17.8 percent compared to August 2011 and up 0.3 percent compared to July 2012. The index for architectural coatings, while unchanged compared to July, is up 11.7 percent year-over-year. And lumber and plywood costs increased by 2.3 percent in August and are up 6.9 percent compared to August 2011.

A few materials posted substantial declines for the month and year, Sandherr added. Prices for copper and brass mill shapes dropped 1.0 percent for the month and are now down 14.0 percent year-to-year. The index for steel mill products fell by 2.5 percent compared to July 2012 and is down 8.2 percent compared to August 2011. And the price for aluminum mill shapes is down 0.7 percent for the month and 9.8 percent compared to the same point last year.

The price indexes for finished nonresidential buildings, which measure what contractors estimate they would charge to put up new structures, were mixed for the month and up only slightly year-over-year, Sandherr noted. The index for new industrial buildings was unchanged compared to July, but up 1.9 percent year-over-year. The index for new office construction also was unchanged for the month but climbed 2.4 percent for the year. The index for new school construction declined by 0.1 percent in August, but is still up 3.1 percent from a year ago. The price for new warehouse construction rose 0.3 percent in August and 3.8 percent from a year ago.

Association officials said the looming threat of substantial tax increases have likely dampened demand for new construction projects, forcing contractors to aggressively compete for the relatively few projects underway. "Washington’s failure to set tax rates for next year has put a lot of construction projects on hold, making it virtually impossible for contractors to keep pace with rising materials costs," said Sandherr.

Click here to view August PPI table.