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PPI Jumps 24% in 12 Months, Preventing Contractors from Passing Along Cost Increases

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Increases in prices for wood, metals, plastics and gypsum continue to narrow the margin between what contractors pay to acquire raw materials and what they’re able to charge the project owner.

Ken Simonson, chief economist for the Associated General Contractors of America, said the construction industry Producer Price Index – which measures the average change over time in the selling prices received by domestic producers for their output – has climbed 24.3 percent over the past 12 months, increasing 4.3 percent in May 2021 alone. The 12-month climb, he says, is nearly double that of any previous year in history.

“This increase far outstrips contractors’ ability to charge more for projects,” said Simonson. “This gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”

Meanwhile, the PPI for new nonresidential construction – a measure of what contractors say they’d charge to build five types of commercial structures – increased only 2.8 percent over the past 12 months. AGC’s recent analysis included narrative from contractors across the nation who said they’d held their profit expectations down to compete for a limited number of new projects.

According to the AGC, the PPI for lumber and plywood more than doubled, increasing 111 percent from May 2020 to May 2021. The index for steel mill products increased 75.6 percent over the same period. The copper and brass mill shapes PPI rose 60.4 percent since May 2020, and the aluminum PPI rose 28.6 percent. The PPI for plastic construction products increased 17.5 percent, while the index for gypsum products such as wallboard climbed 14.1 percent.

Fuel costs, Simonson says, along with surcharges on freight deliveries, have also jumped.

AGC officials including CEO Stephen Sandherr, are urging the Biden administration to end tariffs and quotas on steel, aluminum and lumber as the first step toward easing pressure on construction costs and supply chain bottlenecks.

“Ending tariffs on Canadian lumber, along with tariffs and quotas on steel and aluminum from numerous allied countries, is good policy,” Sandherr said.

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Construction Employment Stalls in April, Materials Costs Rise Again, Inventories Shrink

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

The level of construction employment remains virtually unchanged in St. Louis and across the U.S. as commercial and residential contractors contend with a prolonged scarcity of able workers and a still-choked building materials supply chain.

Associated General Contractors of America Chief Economist Ken Simonson says finding enough workers continues to be a feat, as reflected in workforce statistics from April. Augmenting the people shortage, he adds, are problems in getting stable prices and reliable deliveries of key materials.

“Contractors are experiencing unprecedented intensity and range of cost increases, supply-chain disruptions and worker shortages that have kept firms from increase their workforces,” said Simonson. “These challenges will make it difficult for contractors to rebound as the pandemic appears to wane.”

Construction employment in the U.S. during April totaled 7.45 million, matching March’s level but 2.6 percent below the most recent peak in February 2020. Simonson said the number of former construction workers (768,000) who were unemployed in April dropped by half from one year ago, and the sector’s unemployment rate fell from 16.6 percent in April 2020 to 7.7 percent last month.

“The fact that (construction) employment has stalled – despite strong demand for new homes, remodeling of all types and selected categories of nonresidential categories – suggests that contractors can’t get either the materials or the workers they need,” Simonson said, noting that many firms are reporting backlogs and rations of key materials.

Still in short supply, according to the Institute for Supply Management’s latest survey report, are steel and steel products (for five months now), PVC products (a three-month shortage), lumber and circuit breakers.

Price spikes continue relative to copper, wire, oriented strand board, lumber, wood products, resin products, PVC products, steel, diesel, aluminum, vinyl windows and roof shingles.

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