Rising Construction Materials Costs Squeeze Contractors Earnings
According to the Associated General Contractors of America (AGC), contractors are getting hit hard by rising petroleum and metal prices in April, only passing on a portion of the increased costs. The result is a cost squeeze made worse by lagging demand. AGC says these increasing material costs “will push more construction employees and firms out of work unless public officials act promptly to encourage public and private investment.” From the earlier blog on construction spending, it looks like this won’t happen soon as governments at all levels are tightening their budgets again this year.
“Contractors have been clobbered for several months by double-digit price hikes for diesel fuel, copper and steel products,” said Ken Simonson, the association’s chief economist. “Worse, the price squeeze is hitting many contractors while private demand remains weak, public demand is shrinking and the amount they earn for most publicly funded projects is about to be drastically cut.”
These price increases are significant as diesel fuel jumped 5.7% in April and steel products climbed 2.2% in April as well. Fuel prices are up 41.6% from last year while steel product prices are up 13%.
Simonson did note that “the worst may be over for now” but that “many contractors, especially those working on public projects, are still facing cutbacks in work to bid on.”
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