AGC’s Economist Expresses Concern Over Rising Costs

Mon November 28, 2005 - National Edition
CEG



Inflation at the consumer level remained moderate [in October], but many construction inputs are going through the proverbial roof,” warned Ken Simonson, chief economist of The Associated General Contractors of America (AGC), the nation’s leading construction trade association.

Simonson said, “It is a relief to see that consumer prices, other than energy and food, are still rising only .1 or .2 percent per month, according to the report from the Bureau of Labor Statistics [BLS]. Unfortunately, the BLS report on producer prices showed that nonresidential construction is being hit with a variety of steep price increases. In addition, some materials are in short supply. I’m concerned that price spikes and supply shortages will continue in 2006,” he said.

Simonson noted that the “core” rate of both consumer and producer price increases, omitting food and energy costs, had risen only approximately 2 percent in the past 12 months.

“In contrast,” he said, “the cost of inputs for highway and street construction leaped 16 percent; nearly 10 percent for other heavy construction; and eight percent for building construction. Many materials contributed to this spike,” Simonson commented.

“The price index for copper and brass mill shapes was up 21 percent; asphalt, 18 percent; gypsum products, such as wallboard, 15 percent; plastic construction products, 13 percent; and concrete products, 10 percent.

"The worst news has been about diesel fuel, which affects contractors in three ways,” Simonson added. “The producer price index for diesel jumped 59 percent from October 2004 to October 2005. That directly raises the cost of operating off-road equipment like tower cranes and bulldozers. Contractors also buy diesel fuel to run dump trucks, concrete mixers, and other vehicles. And the truckers who deliver construction materials are passing through higher diesel costs in the form of fuel surcharges on most deliveries.”

Simonson noted, “Lumber and plywood prices have fallen, and steel prices are mixed. However, the break on wood products benefits mainly single-family construction, not multi-family or nonresidential projects.

“Tight supplies of cement, polyvinyl chloride [PVC] pipe, and tires for off-road equipment have been an ever bigger problem than high prices for many contractors,” Simonson said.

“AGC urges the Commerce Department to alleviate cement shortages by immediately suspending the duty on Mexican cement. A 55-percent anti-dumping duty that applies only to Mexican cement has led importers to bring in cement from China, Korea, Greece, and Venezuela instead, adding to transit times and port congestion.”

Simonson concluded, “Without relief from the duty, cement supplies will continue to be a problem for hurricane-wracked southern states and fast-growing areas in the southwest. Other materials may face spot shortages in 2006, and many prices will be volatile.”

For more information, visit www.agc.org.