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Construction Financial Perspective – May 2013

What’s it cost?

The cost trends of recent months continued to extend at the end of the first quarter, as consumer prices (CPI) remained relatively flat, while producer prices for construction materials mirrored the trends in demand for the major construction categories. Materials that are used primarily in housing and non-residential buildings – like drywall, lumber and plywood, roofing and siding – saw price increases in March and significant inflation compared to the year before. Those materials more commonly associated with non-building construction or related to diesel fuel costs – which plunged in March – saw declining prices again.

According to the Bureau of Labor Statistics (BLS) report of April 12, overall CPI grew somewhat sharply in March from February, climbing 0.8 percent. That rate of inflation was the same for the entire quarter, however and consumer inflation since March 2012 was only 2.0 percent. Producer price index (PPI) for all finished goods showed lower inflation, up only 0.2 percent for the month and 1.1 percent for the previous twelve months. PPI for construction materials was still smaller, with no change from February and an increase of less than one percent since March 2012.

“Thanks to a recent, sharp drop in diesel fuel prices last month—along with continuing declines in steel, copper and aluminum prices—overall construction costs were unchanged from February and up only 0.9 percent over the past year,” said Ken Simonson, chief economist for the Associated General Contractors of America. “However, building contractors had to absorb another month of increases in the cost of lumber and plywood, gypsum products, construction plastics, paint and roofing materials.”

Prices for building construction put into place increased by one or two percent since March 2012, even though prices for building-related products increase at more than double that rate. That trend is an indication that contractors are not passing increases along on their bids. The inflation rates for major subcontractors that repair or maintain non -residential buildings were similar – although electrical contractors saw their prices decline by half percent. Highway contractors have been even more aggressive, according to the National Highway Construction Cost Index, a weighted average of accepted bids on all state highway and bridge projects. That indes decreased 1.7 percent during the fourth quarter of 2012 after falling 1.3 percent in the third quarter.

Among the detail highlights from the BLS report were gypsum products – which cost 0.7 percent more in March and nearly 18 percent more than a year earlier; lumber and plywood – which spiked 3.7 percent from February and 10.6 percent year-over-year; construction plastics – which went up 2.6 percent for the month and 4.5 percent from March 2012; copper and brass mill shapes – which fell 2.6 percent and 6.6 percent respectively; steel products – which declined only 0.4 percent in March but fell 9.5 percent year-over-year; and #2 diesel fuel – which dropped 6.0 percent from February and 6.7 percent compared to March 2012.

  • Bob Biehl
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