New data shows low construction prices may soon be coming to an end

New federal data released recently shows sharp increases in the prices of key construction materials like diesel, copper and brass mill shapes likely foreshadow future increases in construction costs, the Associated General Contractors of America said. The new November producer price index (PPI) report from the Bureau of Labor Statistics provide the strongest indication yet that construction prices are heading up, the association noted.

"Public agencies and private owners contemplating construction projects should treat today's figures as a warning shot," said Ken Simonson, the association's chief economist. "Prices for many materials have stopped falling and are poised for increases."

Simonson noted that the producer price index for inputs to construction industries, a weighted average of all materials used by contractors, had fallen 2.3 percent over the past 12 months but was flat over the past three months and rose 0.6 percent from October to November alone.

He added that there have been significant one- and three-month increases in the price indexes for diesel fuel (up 6.3 percent over one month and 6.4 percent over three months), copper and brass mill shapes (+4.6 percent and +11.3 percent), steel mill products (-1.6 percent and +4.1 percent), aluminum mill shapes (0 and +1.3 percent) and insulation materials (+0.3 percent and +0.6 percent).

"All of these items had dropped in price compared to a year ago but the declines have bottomed out or reversed," Simonson pointed out. "More increases are likely soon, as the dollar loses value and construction picks up in key foreign markets."

Simonson added that major steel mills have already announced January price increases for construction products. He cautioned owners that have been holding back in the hopes of getting still lower prices that they should go ahead with projects now, while materials costs are low and skilled contractors are plentiful.

"There could be major price spikes and fewer contractors bidding on projects over the next few months," Simonson concluded.

View the latest Producer Price Index figures.