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Materials and Bid Prices Flatten – For Now

By Ken Simonson Chief Economist AGC of America

Have contractors stopped buying high and selling low? Maybe for the moment but the pattern over the past year is still unfavorable.

The latest producer price indexes (PPIs) from the Bureau of Labor Statistics showed that most materials costs were flat or slightly lower in July. The PPI for inputs to construction inputs a weighted average of the selling price of all materials used in construction plus items consumed by contractors—such as diesel fuel—dropped 0.2% for the month but rose 4.5% over 12 months.

View the PPI tables for construction here.

Meanwhile PPIs for new industrial warehouse school and office construction which reflect contractors’ bids as well as their material and supply costs each edged up 0.1 to 0.3% for the month From July 2009 to July 2010 the index for new school construction increased 0.6%; the PPI for new industrial buildings was flat; and the PPIs for warehouses and offices dipped 0.6%.

Indexes for new and repair nonresidential work by subcontractors were also mixed. The index for concrete contractors rose 0.6% for the month but only 0.1% over 12 months; electrical down 0.1% for the month and up 0.3% over 12 months; plumbing down 0.4% in July up 2.7% from a year before; and roofing down 1.5% in July and down 2.9% over the year.

Many inputs dropped in price for the month: gypsum products -2.2%; diesel fuel -1.5%; steel mill products and lumber and plywood -1.4% each; aluminum mill shapes -0.6%; plastic construction products -0.5%; and copper and brass mill shapes -0.1%. But all of these indexes had moved up sharply earlier in the year and were still above their July 2009 levels. Two inputs important to highway contractors—concrete products and asphalt paving mixtures and blocks—were unchanged for the month.

An apparent slowdown in the economic recovery here and in other parts of the world should keep materials costs in check for the next few months. But contractors remain far more vulnerable than consumers to sudden price spikes while the intense competition to win projects is likely to keep delivered-building costs subdued.

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