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October Dip in Construction Materials
Costs Provides Little Relief

Construction input prices - for raw materials and related project essentials - fell 0.4 percent overall in October following two consecutive months of gains, led by declines in lumber, gypsum and steel mill products. Contractors and construction firms still on the margins due to the anemic recovery, however, are unlikely to feel any real impact from the decline.

Overall prices for construction materials dipped in October following two months of increases, but industry analysts expect the decline to be short-term, and contractors already squeezed by high costs and low billings are unlikely to see relief.

"Although several materials retreated in price last month, prices in the past year have still outpaced the tiny increases in contractors' bids," said Ken Simonson, chief economist for the Associated General Contractors of America. "In addition, some of the price drops have already reversed, or will soon, leaving contractors who have already submitted bids vulnerable to losses."

The producer price index (PPI) for construction inputs -- covering materials that go into every type of project, plus items consumed by contractors like diesel fuel -- decreased 0.4 percent in October, following increases of 0.9 percent in both September and August. The index climbed 2.0 percent in the 12 months ending in October.

Meanwhile, the indexes that reflect what contractors would charge for their work were largely unchanged and mostly rose less than materials costs over 12 months -- 1.0 percent for industrial buildings, 1.4 percent for new office construction, 1.5 percent for schools, and 2.6 percent for new warehouses.

Prices changes for essential construction materials were mixed in October. The price index for diesel fuel rose 2.3 percent in October and 12.6 percent over 12 months. Prices for copper and brass mill shapes climbed 2.8 percent in October and 4.7 percent year-over-year.

In contrast, the index for steel mill products dropped 1.9 percent for the month and 8.5 percent for the year. The index for lumber and plywood shrank 1.8 percent in October but was 6.2 percent higher than a year ago. Indexes for gypsum products and insulation materials both fell 0.7 percent for the month but rose relative to October 2011 -- by 14.1 percent and 5.5 percent respectively.

"Many of these price changes appear to be short-term," Simonson said. "While retail diesel prices have dropped 15 cents per gallon in the past three weeks and copper futures have declined, steel, gypsum and even concrete suppliers have announced hefty price hikes for December or January. As a result, contractors who have already bid to install these materials at fixed prices may be headed for losses, and even bankruptcy."

Click here to view the October PPI table.

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December 6, 2019, 12:38 pm PDT

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