Construction Materials Costs Drop in October but Outpace Bid Prices Year over Year

Construction contractors are facing a continuing cost squeeze, even though a key price index for construction materials dropped in October and showed only a moderate increase over the past year, according to an analysis of federal figures released this week by the Associated General Contractors of America. Association officials said recent and unannounced price hikes could threaten the survival of some contractors.

“Although several materials retreated in price last month, prices in the past year have still outpaced the tiny increases in contractors’ bids,” said AGC chief economist Ken Simonson. “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, covering materials that are used in all types of projects, plus items such as diesel fuel, declined 0.4 percent in October, following increases of 0.9 percent in August and September. However, the index climbed 2 percent in the 12 months ending in October. Meanwhile, indexes that reflect what contractors would charge were largely unchanged and mostly rose less than materials costs during the 12 months.

Association officials said declining public investments in infrastructure and businesses’ reluctance to commit to investments in the face of the “fiscal cliff” are forcing contractors to keep bids low.

“With so few projects to bid on, contractors are offering their services with little or no margin to cover materials costs,” said Stephen Sandherr AGC CEO. “Congress and the administration have to find a way to avoid the catastrophic increases in taxes and cuts in infrastructure spending that threaten many construction firms and risk putting their employees out of work.”

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