Construction Materials Costs Dip in October, Outrun Contractors’ Bid prices Year-Over-Year

Construction contractors face a continuing cost squeeze, even though a key price index for construction materials dipped in October and showed only a moderate increase over the past year, according to an analysis of federal figures released by the Associated General Contractors of America (AGC). Association officials warned that recent and announced price increases may threaten the survival of some contractors.

“Although several materials retreated in price last month, prices in the past year have still outpaced the tiny increases in contractors’ bids,” says Ken Simonson, chief economist for the construction trade association. “In addition, some of the price drops have already reversed, or will soon, leaving contractors who have already submitted bids vulnerable to losses.”

The producer price index for inputs to construction—covering materials that go into every type of project, plus items consumed by contractors such as diesel fuel—decreased 0.4 percent in October, following increases of 0.9 percent in both September and August. The index climbed 2.0 percent in the 12 months ending in October. Meanwhile, the indexes that reflect what contractors would charge for their work were largely unchanged and mostly rose less than materials costs over 12 months—1.0 percent for industrial buildings, 1.4 percent for new office construction, 1.5 percent for schools, and 2.6 percent for new warehouses.

“Many of these price changes appear to be short-term,” says Simonson. “While retail diesel prices have dropped 15 cents per gallon in the past three weeks and copper futures have declined, steel, gypsum and even concrete suppliers have announced hefty price hikes for December or January. As a result, contractors who have already bid to install these materials at fixed prices may be headed for losses, and even bankruptcy.”