The price index for construction materials and inputs increased by 0.6 percent in January, behind cost fluctuations in materials that ranged from a 7 percent jump in gypsum to a 2 percent drop in diesel prices. A new set of "final demand" indexes shows that prices for finished nonresidential buildings are rising faster than construction component costs, which could squeeze builder margins in a soft economy.

The overall producer price index for inputs to construction rose 0.6 percent in January, as prices for materials used in construction and for nonresidential building construction increased more than overall prices for "final demand" in January, according to an analysis of retooled federal data on producer prices.

"Despite growing construction employment and increasing private-sector demand for construction, market conditions remain quite tough for most firms," said Stephen Sandherr, the Associated General Contractors of America's chief executive officer, whose firm published the February 19 report.

The index increase was propelled by a one-month jump of 7.4 percent in the index for gypsum products; followed by lumber and plywood, 2.4 percent; cement, 2.0 percent; insulation materials, 1.5 percent; and copper and steel products, 1.2 percent each. The impact of these price hikes would have been worse if not for declines in the price indexes for diesel fuel, down 1.9 percent; flat glass, which declined 0.6 percent; and architectural coatings such as paint, which fell 0.3 percent.

"Although contractors on average were able to raise bid prices in line with materials cost increases, the results varied widely by commodity, building type and specialty trade," said AGC chief economist Ken Simonson. "Several key construction materials, or "processed goods,' experienced substantial price increases that in many cases exceeded what contractors could pass on last month. It will take a few more months to see if these costs increases are sustained "?u putting a squeeze on contractors' margins "?u or a one-time blip."

A new set of "final demand" indexes breaks out how much private and public owners are paying for the differing mix of nonresidential buildings they buy. In January, the index for "construction for private capital investment" climbed 0.6 percent, while the index for "construction government" rose 0.8 percent. The combined index for final demand for construction rose 0.6 percent, more than the goods and services components of overall final demand, which increased 0.4 percent.

Price increases varied by building and subcontractor type, Simonson said. The new school building construction index rose the most, 1.0 percent; followed by office construction, 0.6 percent; industrial buildings, 0.5 percent; health care buildings, 0.4 percent; and warehouses, 0.3 percent. The index for new, repair and maintenance work on nonresidential buildings by plumbing contractors climbed 1.1 percent in January; the index for roofing contractors rose 0.7 percent; and the index for concrete contractors increased 0.4 percent. An index for electrical contractors was unchanged.