special to Realty/Builder Connection
Prices for construction materials jumped in February, driven by extreme increases in items used in new housing and nonresidential building renovations, according to an analysis of new federal figures released last month by the Associated General Contractors of America.
Association officials said the increased materials prices are hitting contractors struggling to recover from a years-long downturn in construction demand.
"For the second month in a row, contractors endured outsized price hikes for gypsum, wallboard, lumber, and insulation materials," said Ken Simonson, chief economist for the construction trade association. "In addition, soaring diesel prices mean contractors are paying more for fuel they buy and, via fuel surcharges, for the thousands of deliveries of materials and equipment required for construction projects."
The producer price index for all construction inputs — what contractors pay for construction materials - leaped 1.3 percent between January and February, equaling the entire increase for 2012, Simonson noted. The index was 2.0 percent higher than in February 2012, outpacing the increase in the price contractors are able to charge for most types of new buildings. The index for new office construction rose only 1.0 percent in the past year; new school buildings 1.2 percent; new industrial construction, 1.3 percent; and new warehouses, 2.6 percent.
Association officials noted that the increases in construction materials prices were cutting into firms' margins just as the industry is beginning to experience a modest upturn in private sector demand. Combined with over $4 billion worth of construction cuts imposed by the federal sequester, the price hikes will make it harder for firms to expand, officials noted.