|
The construction industry continues to exceed even the elevated rise in the overall producer price index (PPI). On August 19, the Bureau of Labor Statistics announced that the PPI jumped 1.2% in July, seasonally adjusted, and 9.8% over 12 months, the biggest one-year gain since June 1981. But the PPI for inputs to construction industries, a weighted average of materials that go into every type of construction plus items, such as diesel fuel, that are used up by contractors, jumped 2.0% for the month, not seasonally adjusted, and 11.9% over 12 months.
The news was worse yet for highway and street construction, up 3.8% and 21.4%, respectively; and other heavy construction, up 2.1% and 19.8%. The PPI for inputs to nonresidential buildings was almost as bad, rising 1.9% and 11.8%.
These extreme increases, and the differences among nonresidential segments, reflect the huge jumps that occurred in diesel, steel and asphalt prices from mid-June to mid-July, when prices were collected for computing PPIs. The August PPIs for construction should look somewhat better, particularly for highway construction, which is such a big user of diesel fuel.
That’s because the national average retail price of on-highway diesel fuel fell 56 cents per gallon, from a record of $4.76 on July 14 to $4.20 on August 18, the Energy Information Administration reported. But other materials, such gypsum products, plumbing parts, insulation and other building envelope materials, are still going higher, according to price notices contractors have forwarded to AGC in recent weeks.
Recently, there have been sharp declines in futures prices for oil, natural gas and copper, which should start or continue to lower the prices of diesel fuel, asphalt, plastics and copper and brass products used in construction. Nevertheless, the industry seems likely to be paying more this year than last for most materials, particularly because many vendors have been implementing or increasing delivery charges. And despite the tumble in diesel prices over the past month, they remain nearly 50% higher than the $2.80-$2.90 price that prevailed in most of 2007.
Contractors should expect the December 2008 PPI for construction to exceed the December 2007 level by 6-8%, compared to a 4.5% increase that occurred in 2007. Unfortunately, increases could be just as large in 2009 and beyond.
 
|
