CONSTRUCTION MATERIALS PRICES DOWN SLIGHTLY IN OCTOBER BUT CONTINUE TO OUTPACE BUILDING PRICES FOR THE YEAR, CAUSING “DIFFICULTY” FOR CONTRACTORS

Producer Price Index for Construction Materials Climbed 6.9 Percent in Past 12 Months, While Amount Contractors Charge Only Increased Between 3.3 to 4.3 Percent, Construction Economist Notes

WASHINGTON, D.C. – November 15, 2011 – (RealEstateRama) — The amount contractors pay for a range of key construction materials dropped slightly (-0.6 percent) in October but climbed 6.9 percent from the year-earlier level, according to an analysis of producer price index figures released today by the Associated General Contractors of America. Meanwhile, the price contractors charge for new nonresidential building construction edged up only 3.3 to 4.3 percent over 12 months, depending on building type.

“While the gap is beginning to narrow just a bit, prices for most construction materials have risen far more during the past year than the amount contractors can charge for completing construction projects,” said Ken Simonson, the association’s chief economist. “Coupled with weak growth in demand for construction, the price gap is likely contributing to the stagnant employment levels the industry has been experiencing all year.”

Simonson noted that prices for a number of key construction materials declined during the past month. Prices for diesel fuel dropped 2.2 percent in October, but are up 27.3 percent since October 2010 while prices for copper and brass mills shapes fell -8.3 percent during the past month and -0.2 percent over 12 months. Meanwhile, prices for gypsum and steel mill products increased in October by 3.0 and 0.4 percent respectively. Gypsum prices are down -1.0 percent compared to last year, however, while steel mill product prices are up 13.6 percent over the past year.

“Costs for essential construction materials are likely to remain volatile, causing financial difficulties for some contractors, who must guarantee prices to owners months before purchasing materials,” the economist cautioned. He noted, for example, that in the month since the latest price was collected retail prices for diesel have jumped 26 cents per gallon.

Simonson observed that the price index for new construction – what contractors charge for construction projects – increased during the past month and is up compared to last year. The price of new industrial buildings rose 1.5 percent during the past month and 3.4 percent for the year. New warehouses rose 1.6 percent in October and 3.9 percent compared to October 2010. The price for new school construction increased by 1.8 percent compared the prior month and is up 4.3 percent compared to last year. And new office construction rose 1.0 percent in October and is 3.3 percent higher than last year.

Association officials said the pending repeal of the 3 percent tax withholding mandate – the House is expected to vote on a Senate-approved measure tomorrow – will provide some much-needed financial relief to the construction industry. “The fact contractors won’t be forced into providing billions in interest-free loans to the federal government beginning in 2013 will provide some much-needed relief for a hard-hit industry and its struggling workers,” said Stephen E. Sandherr, the association’s chief executive officer.

View the latest producer price index tables for construction.