The prices contractors pay for construction materials and services — chiefly for new nonresidential construction — jumped 12.6% year-on-year (YoY) in September despite a slight 0.2% decline month-on-month (MoM), the Associated General Contractors of America (AGC) reported in its latest analysis of government data.
AGC cautioned that the industry is suffering mostly from inflation, and new Buy America rules set to go into effect next month will only make the situation more dire.
“Today’s price report shows that costs for construction continue to outpace those of other industries,” said Ken Simonson, AGC’s chief economist. “Furthermore, the steep runup in diesel prices in the last few weeks is likely to make projects still more expensive to complete.”
Citing the Bureau of Labor Statistics, AGC said that the producer price index (PPI) for inputs to nonresidential construction — the prices charged by goods producers and service providers such as distributors and transportation firms — slipped 0.2% through September but were still 12.6% higher when compared to the same year-ago period.
That outpaced the 8.5% YoY rise in the overall producer price index for finished goods, Simonson noted.
Meanwhile, retail diesel fuel prices soared by 39 cents per gallon in the past week, bringing the YoY increase to $1.64 or 45.7%, the report said.
“Construction is especially sensitive to diesel costs because most projects require thousands of truckloads to deliver equipment and materials and to move or haul away dirt, debris, and equipment at the end of a project,” added Simonson.
A diverse mix of inputs posted double-digit gains over the past 12 months. The index for diesel fuel leaped by 65.9%, including 11.7% last month. The index for liquid asphalt, used in paving projects, jumped 43.3% despite an 11.8% decline in September. The index for paint and other architectural coatings rose 27.2% over 12 months.
The price index for gypsum products such as wallboard jumped 18.4% YoY. Similarly, plastic construction products (17.9%), truck transportation of freight (16.3%), asphalt and tar roofing materials (15.3%), concrete products (14.3%), insulation products (13.4%), and flat glass (10.3%), were among the products that accelerated over the past 12 months.
AGC urged the Biden Administration to reconsider plans to implement a series of new Buy America requirements associated with a host of federal infrastructure investments. It said that most contractors will struggle to find materials under the new Buy America guidelines, according to survey results.
“With materials hard to find and prices continuing to spike, artificially limiting the supply of goods will only undermine the buying power of those new federal infrastructure investments,” it cautioned.
“It stands to reason that further limiting the supply of already scarce materials will lead to even more inflation in the cost of those materials,” said Stephen Sandherr, AGC’s CEO. “Imposing new Buy America requirements at a time like this will undermine the potential benefits of new federal infrastructure investments.”
By David Schollaert, David@SteelMarketUpdate.com
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