Construction cost increases, which slowed during the second half of 2006, are likely to accelerate, according to Kenneth Simonson, chief economist for the Associated General Contractors of America.
“By the end of 2007, materials costs could be rising again at a 6-to-8 percent rate, with wages rising at a 5 percent pace,” Simonson told AGC’s annual convention in San Antonio last week.
Simonson said construction is vulnerable to high price increases because the industry has little ability to avoid using materials that are in strong demand and for which supplies increase irregularly. Simonson points to greater volatility in petroleum, concrete, and metals products, implying that highway and other heavy construction are more likely to experience large price jumps again than are building construction segments. But, he adds, “even building construction is at risk of much higher materials cost increases than the general rate of inflation.”