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Materials Costs Outdistance Finished Building Prices in April

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Contractors were able only to partially pass on the costs of rising petroleum and metals prices in April, according to a recent analysis of producer price index figures released by the Associated General Contractors of America. Association officials said the resulting cost squeeze—a result of sluggish demand for construction—will push more construction employees and firms out of work unless public officials act promptly to encourage public and private investment.

“Contractors have been clobbered for several months by double-digit price hikes for diesel fuel, copper and steel products,” said Ken Simonson, the association’s chief economist. “Worse, the price squeeze is hitting many contractors while private demand remains weak, public demand is shrinking and the amount they earn for most publicly funded projects is about to be drastically cut.”

Simonson noted that the producer price index for all materials increased by 1.4% in April and 7.1% over the past 12 months. Meanwhile, the price of finished buildings rose 1.1% or less in April and only 1.7% or less over the past year, depending on building type.

Simonson said the most extreme price increase was for diesel fuel, which jumped 5.7% in April and 41.6% year-over-year. Prices for copper and brass mill shapes climbed 2.6% in April and 14.3% year-over-year, while steel mill product prices increased 2.2% and 13%, respectively.

Noting that prices for crude oil, iron and steel scrap and copper futures—items that usually indicate near-term price movements for diesel fuel, construction steel and copper wire and pipe—have slipped from their highs in recent weeks but remain very volatile, Simonson suggested the worst may be over for now. Meanwhile, construction employment has risen modestly for the past three months and construction spending edged up in March, according to government reports last week. However, the construction economist cautioned that many contractors, especially those doing public projects, are still facing cutbacks in work to bid on.

Association officials urged Congress and the White House to promptly enact overdue infrastructure spending bills and repeal a law that will require all levels of government to begin withholding 3% of payments to contractors by 2013.

“The lack of funding for transportation and water projects, combined with the looming withholding of more than most contractors make on the average project, threatens to force many firms out of business,” said Stephen E. Sandherr, the association’s chief executive officer.

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