Construction Costs Cool in November, But Outpace General Inflation for Year

12/22/2006 |

AGC Economist Simonson warns that more bad news is likely despite "pleasing plunge"

"Construction materials costs took a pleasing plunge in November, while other producer prices rose," Ken Simonson, chief economist for The Associated General Contractors of America (AGC), said Tuesday, Dec. 19. "But, the next 12 months are still likely to show higher costs for construction than for the economy as a whole." Simonson was commenting on the Dec. 19 producer price index (PPI) report from the Bureau of Labor Statistics.

"The index for construction materials and components dropped half a percent in November, even as the overall PPI for finished goods climbed 0.8 percent," Simonson remarked. "But, over the last 12 months, construction costs have jumped 5 percent, vs. 2 percent for the consumer price index and a skimpy 0.9 percent for the finished-goods PPI.

"The recent retreat in construction costs was widespread but not universal," Simonson commented. "There were price declines in November for diesel fuel and asphalt, plastic construction products, lumber and plywood, gypsum products, and steel and copper products. But, there were continuing increases in the prices of most concrete products, brick, and aluminum mill shapes.

"The ongoing retreat in home construction - exemplified by today's report that permits declined again in November - will maintain downward pressure on gypsum and wood prices," Simonson added. "But, petroleum, cement, and metals remain at historically high levels, which will tilt non-residential construction costs up.

"As long as demand in industrializing countries remains strong, construction is likely to face higher costs for materials that depend on world markets," Simonson noted. "And, with diesel prices stuck near $2.60 per gallon, the cost of delivering materials to job sites and running the equipment to install them will keep costs high."

This information was reprinted with permission from the Washington, D.C.-based Associated General Contractors of America (AGC), the largest and oldest national construction trade association in the United States. AGC represents more than 32,000 firms, including 7,000 of America's leading general contractors, and over 11,000 specialty-contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters. For more information, visit the AGC website at (www.agc.org).


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