- They say what goes up, must come down. But construction material pricing has been testing that inevitability for over two years, with no discernable end in sight.
- Economist Ken Simonson issued yet another construction inflation alert last week, spotlighting the inexorable climb of diesel, aluminum mill shapes, copper and plastic construction products.
- “This period is unique in how broad-based price increases are,” said Simonson, chief economist for the Associated General Contractors of America, in an interview. “Previously, we’ve seen just a limited number of items soaring in price. This time, it’s much more extensive in the number and magnitude, long lead times, unexpected shortages and things not showing up in the quantities or times expected.”
The news adds to overall inflation woes, as the Consumer Price Index jumped 8.5% in March, its highest spike since 1981. The AGC’s construction alert was the seventh pricing alarm Simonson has sounded since March 2021. Before that, his employer hadn’t put out a similar warning since 2008, at the height of the Great Recession, and never with such an accelerated cadence.
Courtesy of Associated General Contractors of America
Barry Wurzel, president and founder of commercial contractor Wurzel Builders in Austin, Texas, has seen those impacts first hand.
“Suppliers are constantly repricing, and they’ll only hold their prices for 24 hours,” Wurzel said. “Owners haven’t embraced the change of pace yet, so it puts a strain on the relationship with general contractors.”
Chief among the culprits in the latest report was the price of diesel. It was up 33% in five weeks, leading to an all-time high of $5.25 per gallon on March 14. That added to the 237% jump that had already transpired between April 2020, at the beginning of the COVID-19 pandemic, and February 2022.
Now, those price surges are being felt from the basements of skyscrapers all the way up to their highest floors. Giant diesel-guzzling diggers claw away dirt for their foundations, before enormous, diesel-belching tower cranes hoist their steel beams in place. It also adds cost to every item in between.
“Fuel surcharges are common now, and there’s typically a separate line for delivery charges that are adjusted according to the change in price,” Simonson said. For example, a 10 cent increase per gallon per week might result in a 2% rise in delivery fees, he said.
Other standouts included steel mill products, up 113% between April 2020 and February 2022, lumber and plywood (+101%), copper and brass mill shapes (+52%), plastic construction products (+45%) and gypsum or drywall (+29%).
Simonson emphasized that cyclicity dictates costs must eventually decline. But at what point …….