Construction Materials Cost Rising

Palm Springs, CA, March 22, 2006--"Construction materials costs are outpacing overall consumer and producer prices by a wide margin," said Ken Simonson, chief economist for The Associated General Contractors of America (AGC). "Today the government reported that the producer price index (PPI) plunged 1.4 percent in February but the PPI for construction materials and components rose 0.3 percent." Simonson today issued an updated analysis of construction materials costs in the latest version of AGC's Construction Inflation Alert, which shows that with a generally strong outlook for construction activity, materials prices are likely to rise faster than the overall rate of consumer or producer prices again in 2006. In the report Simonson says, "the rate of increase for construction materials and components prices could be closer to the 10.1 percent rate of 2004 than the 6.1 percent rate of 2005. Once again, however, prices are likely to vary greatly by type of material and project." "Oil and natural gas prices have fallen sharply from their post-hurricane highs," Simonson noted. "However, production from the Gulf of Mexico is still down by more than 15 percent, keeping supplies tight. As of mid-March, the national average retail price of diesel fuel was around $2.55 per gallon, 60 cents below the record set after Rita but 35 cents (16 percent) higher than a year ago." "It appears diesel prices for 2006 as a whole will be up 10 to 30 percent over 2005, with wide month-to-month variation," said Simonson. Simonson added, "Asphalt prices also will be elevated and may go higher by year-end, as refiners introduce more desulfurization equipment that leaves less liquid asphalt at the end of the refining process; construction plastics prices should come down from recent highs but average 10 to 20 percent higher than year-ago levels; and other products that rely on natural gas or that have high transport costs, such as paints and coatings, insulation, and brick, are likely to rise 5 to 10 percent in price." Simonson also predicted, "that rebuilding from Hurricanes Katrina, Rita and Wilma is not likely to have much impact on national markets for materials or labor, but will apparently be very protracted, and the overall level of construction in Louisiana will probably remain below pre-hurricane levels for several months at least." The Associated General Contractors of America (AGC) represents more than 32,000 firms, including 7,000 of America's leading general contractors, and over 11,000 specialty-contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters. GC Web site: www.agc.org.

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