Contractors Squeezed by Growing Materials Costs

A 14.4 percent spike in diesel fuel prices nationwide through August and September contributed to the second month in a row the AGC's producer price index increased. Costs for other materials used in building projects also ticked upward, including copper, aluminum, lumber and steel.

Costs for construction materials jumped for the second consecutive month in September, and industry analysts are concerned that some contractors on shaky ground already could be driven from the industry, or into bankruptcy.

The producer price index (PPI) for construction inputs, which tracks items and materials consumed by contractors, increased 0.9 percent in both September and August. The indexes that reflect what contractors charge for their work were largely unchanged, according to the Associated General Contractors of America (AGC), indicating unwillingness by contractors to pass the price increases onto the customer.

“Most contractors have no ability to pass on unexpected cost increases,” said Ken Simonson, AGC chief economist.

Rising prices for a variety of construction materials were responsible for the surge, notably led by diesel fuel, which followed an 8.7 percent leap in August with a 5.7 percent jump in September. Prices for copper and brass mill shapes climbed 3.6 percent in September; the indexes for aluminum mill shapes, lumber, plywood and steel mill products each rose about 1 percent as well.

In contrast, nearly all of the price indexes measuring what contractors and subcontractors charge for putting up finished nonresidential buildings – which includes new industrial buildings, new school construction, new office and warehouse construction – either declined or were unchanged. (Roofing contractors’ prices were the only nonresidential building index to show an increase for the month: 0.3 percent.)

AGC officials said less public infrastructure projects are a major reason contractors are unable to recover costs. Recent Census data showed a 3.5 percent drop in public construction spending from August 2011 to August 2012.

View the AGC’s September producer price index: www.agc.org/galleries/news/PPI_Tables_201209.pdf