The construction economist added that prices were likely to remain volatile for the foreseeable future based on changes in broad-based global demand. “At best, contractors may get more short-term relief in the next few months, but they remain vulnerable to unpredictable price spikes, which can hit several materials at once and jeopardize firms’ viability,” he said.

Simonson noted that the index for new construction — what contractors charge for construction projects — was unchanged from the previous month for all building types except new industrial buildings, which declined by 0.2 percent. He added that annual increases in new construction prices, which ranged between 2.1 and 3.2 percent, paled in comparison to the annual increase in costs for many key building materials, forcing contractors to absorb the difference.

Association officials said contractors were having a hard time compensating for the steep annual increases in construction materials prices because demand for construction remains relatively weak. He noted that private sector demand has increased only slightly during the past year while public sector demand, particularly at the federal level, has been declining rapidly as the stimulus and other federal programs wind down.

“Construction firms are paying more for materials and charging less for their work, even as they chase a diminishing number of projects,” said Stephen E. Sandherr, AGC’s chief executive officer. “Without a significant change in market conditions soon, this industry is going to continue to struggle to add jobs for the foreseeable future.”

Publication date: 09/26/2011