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Construction Prices Jump in November

Dec 22, 2009 5:03 PM

Federal data showing sharp increases in the prices of key construction materials, such as diesel, copper, and brass mill shapes, likely foreshadow future increases in construction costs, according to the Associated General Contractors of America (AGC), Arlington, Va. The November producer price index (PPI) report, recently released by the Bureau of Labor Statistics provide the strongest indication yet that construction prices are heading up, the association notes.

"Public agencies and private owners contemplating construction projects should treat today's figures as a warning shot,” says Ken Simonson, the association's chief economist. "Prices for many materials have stopped falling and are poised for increases."

Simonson notes that the PPI for inputs to construction industries, a weighted average of all materials used by contractors, had fallen 2.3% over the past 12 months, was flat over the past three months, and rose 0.6% from October to November alone.

He adds that there have been significant one- and three-month increases in the price indexes for diesel fuel (up 6.3% over one month and 6.4% over three months), copper and brass mill shapes (+4.6% and +11.3%), steel mill products (-1.6 % and +4.1%), aluminum mill shapes (0% and +1.3%), and insulation materials (+0.3% and +0.6%).

"All of these items had dropped in price compared to a year ago but the declines have bottomed out or reversed,” Simonson points out. "More increases are likely soon, as the dollar loses value and construction picks up in key foreign markets."

Simonson adds that major steel mills have already announced January price increases for construction products. He cautioned owners that have been holding back in the hopes of getting still lower prices that they should go ahead with projects now, while materials costs are low and skilled contractors are plentiful. "There could be major price spikes and fewer contractors bidding on projects over the next few months," Simonson concludes.

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