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Construction Materials Costs Outrun Prices in June

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Construction costs again outpaced other producer prices in June, but contractors remained unable to recoup the costs through higher bid prices, according to an analysis of producer price index figures released in mid-July by the Associated General Contractors of America. Association officials said the ongoing cost squeeze would put new pressure on construction firms to reduce staff and possibly close down.

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“Despite a one-month dip in the prices of some key materials in June, construction costs rose on a year-over-year basis at the highest rate since 2008,” said Ken Simonson, the association’s chief economist. “Worse, prices are rising amid continued layoffs and construction spending levels that hit an 11-year low in May.”

Simonson noted that the producer price index for all construction materials inched down 0.1% in June but increased 8.3% over the past 12 months, whereas the index for finished goods fell 0.7% for the month (0.4%, seasonally adjusted) and climbed 7% over 12 months. Meanwhile, the price of finished buildings was unchanged in June and rose only 2% or less over the past year, depending on building type.

Simonson said outsized year-over-year price increases for construction were attributable to the indexes for diesel fuel and metals. The index for diesel rose 1.4% in June and 50% since June 2010. Among key metals, prices for copper and brass mill shape climbed 0.4% and 26%, respectively; aluminum mill shapes rose 0.4% and 17%; and steel mill products dropped 1.7% in the latest month but increased 7.0% from a year earlier.

“All of these materials are in worldwide demand, with supplies that are either tight or threatened by international turmoil,” Simonson said. “In contrast, materials that go strictly for construction have dropped in price as demand remains weak.”

He cited as examples the price indexes for gypsum products such as wallboard, which fell 2.8% in June and 7.4% over 12 months; lumber and plywood, 0.9% and 4.1%; and concrete products, 0.1% and 0.2%.

Association officials said that given the continued economic pressures on the construction industry, Congress and the White House should reconsider planned cuts for infrastructure maintenance that will only increase taxpayer burdens over the long-term.

“Allowing our highways, bridges and public structures to degrade will make matters worse for the construction industry and force taxpayers to pay more to fix broken buildings and infrastructure,” said Stephen E. Sandherr, the association’s chief executive officer.

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