Surging Costs Wreak Havoc on Construction Budgets

"Surging prices for diesel fuel, asphalt, steel, and other materials are clobbering construction budgets," says Ken Simonson, chief economist for the Arlington, VA-based Associated General Contractors of America (AGC), commenting on the producer price index (PPI) for June reported recently by the Bureau of Labor Statistics (BLS).

The PPI for inputs to construction industries - materials used in all types of construction, plus items consumed by contractors, such as diesel fuel - surged 10.4 percent over the past 12 months. The index for highway and street construction leaped 18.9 percent.

"The increases in asphalt and steel costs have been even worse since these prices were collected in mid-June," Simonson adds. "In the first 2 weeks of July, asphalt prices have jumped by 40 percent in several parts of the country. Prices for rebar (steel used to reinforce concrete in highways, bridges, and buildings) soared $200 per ton."

Regarding diesel fuel, the Washington, D.C.-based Energy Information Administration reported recently that the average price of highway diesel hit a new record of $4.76 per gallon, up 12 cents in the past 2 weeks. "These figures won't show up in the PPI until next month, but contractors are paying them now," Simonson notes, adding that "suppliers have been announcing price increases for many other products as well. Recently, two gypsum makers told contractors that wallboard prices would rise at double-digit rates in each of the next 3 months."

In the futures markets, aluminum has been setting records, while natural gas has doubled in price from 1 year ago. This has triggered jumps in the cost of construction plastics - such as polyvinyl chloride pipe, insulation, and flooring - that use natural gas as a feedstock.

"Public agencies, as well as private owners, must adjust their budgets promptly to reflect the new price realities for construction," warns Simonson.

This information was provided by the Associated General Contractors of America (AGC). Visit the AGC website at www.agc.org.