May Materials Cost Hike Continues to Squeeze Contractors

May Materials Cost Hike Continues to Squeeze Contractors

Contractors suffered from a new round of price increases for key materials in May but continue to be unable to pass higher costs along to customers, according to an analysis of producer price index figures released today by the Associated General Contractors of America. Association officials said the ongoing cost squeeze—a result of sluggish demand for construction—threatens to drive more construction employees and firms out of work unless public officials lower barriers to public and private investment.

"New cost pressures bubbled up in May, even as prices moderated for a few items," said Ken Simonson, the association's chief economist. "Meanwhile, contractors have largely held the line on their bids in order to win work while demand for construction remains tepid at best."

Simonson noted that the producer price index for all construction materials increased by 0.9% in May and 7.5% over the past 12 months. The year-over-year figure has accelerated steadily for the past four months. Meanwhile, the price of finished buildings was flat in May and rose only 1.8% or less over the past year, depending on building type.

Simonson said there were substantial price increases in May for wallboard and other gypsum products, which rose 4.3% from April; asphalt paving mixtures and blocks, 3.2%; aluminum mill shapes, 2.6%; construction plastics such as pipe and insulation, 1.8%; and steel mill products, 1.1%. He added that two other key materials had price declines for the month but were still far costlier than a year ago: diesel fuel, down 3.2% for the month but up 39.5% since May 2010, and copper and brass mill shapes, down 4.0% since April but up 17.0% year-over-year.

"Federal spending on infrastructure is fading fast, while most private demand has yet to pick up," Simonson observed. "As a result, contractors are being pinched by higher costs they can't roll into their bids, and many firms are at risk of closing their doors, which would add to the industry's already-high 16% unemployment rate."

Association officials said it is vital that Congress and the White House enact long-overdue infrastructure bills and repeal a law that will require all levels of government to begin withholding 3% of payments to contractors by 2013. "Forcing contractors to earn less even as you slash the amount of work available for them to perform is not a good way to boost employment or revive the economy," said Stephen E. Sandherr, the association's chief executive officer.

View the latest producer price index tables for construction.