AGC Meets with Bush on Cost Increases; Simonson Sees Limited Good News

Douglas E. Barnhart (J. Reese Construction Inc; San Diego Calif.) President of the AGC of America and Stephen E. Sandherr CEO of the AGC of America recently met with President Bush to discuss the impact of rising petroleum costs on the construction industry.

Construction costs have risen much more than consumer prices this year due to the extreme run-up in petroleum costs Barnhart explained during a meeting today at the White House. The producer price index (PPI) for inputs to construction rose 10.4% from June 2007 to June 2008 vs. 5.0% for the consumer price index.

Barnhart continued The PPI for highway and street construction the most fuel- and asphalt-intensive construction segment rose 18.9%. The national average retail price of on-highway diesel fuel on August 4 was $4.50 per gallon up 55% in a year and 57 cents more than the average for gasoline.

The industry has faced unforeseen increases in all construction materials which are resulting in a reduction in projects and causing job uncertainty.

Barnhart and Sandherr were among leaders from a coalition of eight other business associations to meet with the President. During the meeting President Bush told the group Increased domestic energy production will have a ‘psychological impact on the marketplace. He also said that the activities of the coalition have worked to increase the pressure on Congress.

Meanwhile AGC of America Economist Ken Simonson reports that there is finally some good news albeit limited regarding construction materials costs. Simonson says:

By August 6 futures prices had retreated 20 percent from the record set in mid-July for crude oil 15 percent from the May record for copper and more than 30 percent from Julys high for natural gas.

The degree and timing for changes in the cost of what contractors buy will vary with supply and demand for the specific product and how much processing it goes through. Diesel fuel prices have already begun to drop falling 26 cents a gallon from the record set on July 14 to $4.50 on August 4. However that price was still 55 percent higher than a year earlier and 57 cents per gallon higher than gasoline.

In contrast contractors have reported no relief yet on liquid asphalt prices. In fact shortages have appeared in many states for liquid asphalt or the polymers added to it to improve the performance of asphalt pavement.

Gypsum prices which fell sharply during the past two years of the homebuilding collapse may be poised for sharp increases. Manufacturers have notified customers that they intend to raise prices 10-12 percent in each of the next three months beginning August 11.

Many other products are also going up. Suppliers of plumbing supplies have posted increases of 4-38 percent in August and early September. Prices increased in the first week of August by 4-12 percent for a variety of wall ceiling and insulation products. Suppliers continue to announce higher delivery charges or so-called fuel surcharges that may not actually vary with the amount of fuel consumed or the recent price.

Send examples of price change announcements to Ken Simonson at simonsonk@agc.org. For asphalt information see AGCs Hot Topics page. For more economic news visit the Construction Economics section of the AGC of Americas website.