Construction Materials Prices Increase in February and for the Year

(March 14, 2013) – Prices for construction materials jumped in February, driven by extreme increases in items used in new housing and nonresidential building renovations, according to an analysis of new federal figures released today by the Associated General Contractors of America. Association officials said the increased materials prices are hitting contractors struggling to recover from a years-long downturn in construction demand.

“For the second month in a row, contractors endured outsized price hikes for gypsum wallboard, lumber, and insulation materials,” said Ken Simonson, chief economist for the construction trade association. “In addition, soaring diesel prices mean contractors are paying more for fuel they buy and, via fuel surcharges, for the thousands of deliveries of materials and equipment required for construction projects.”

The producer price index for all construction inputs – what contractors pay for construction materials – leaped 1.3 percent between January and February, equaling the entire increase for 2012, Simonson noted. The index was 2.0 percent higher than in February 2012, outpacing the increase in the price contractors are able to charge for most types of new buildings. The index for new office construction rose only 1.0 percent in the past year; new school buildings 1.2 percent; new industrial construction, 1.3 percent; and new warehouses, 2.6 percent.

The producer price index for gypsum products such as wallboard and plaster climbed 4.4 percent in February, following an 11.8 percent leap in January, for a cumulative rise of 17.8 percent over the past 12 months, Simonson noted. Lumber and plywood prices rose 2.3 percent in February and 15.8 percent from a year ago. Insulation prices increased 2.1 percent and 5.9 percent, while the price index for diesel fuel shot up 7.2 percent for the month and 3.8 percent year-over-year.

Prices for metals and paving materials showed mixed patterns, Simonson pointed out. Copper and brass mill prices rose 0.7 percent for the month but remained 2.1 percent below year-ago levels. Similarly, aluminum mill prices climbed 0.6 percent in February but slipped 1.5 percent over 12 months, while the price index for steel mill products dropped 0.9 percent and 9.7 percent, respectively. Asphalt paving prices retreated 0.1 percent for the month but edged up 1.1 percent over 12 months, while concrete prices increased 0.3 percent and 2.3 percent, respectively.

Association officials noted that the increases in construction materials prices were cutting into firms’ margins just as the industry is beginning to experience a modest upturn in private sector demand. Combined with over $4 billion worth of construction cuts imposed by the federal sequester, the price hikes will make it harder for firms to expand, officials noted.

“It is hard for firms to benefit from increasing demand when they can’t pass along rising costs for key materials,” said Stephen E. Sandherr, the association’s chief executive officer. “Having more business doesn’t help if firms end up losing money performing that work.”