AGC Economist: Construction Costs to Keep Rising

Oil is down. The number of construction projects are also down. Material costs are up, however, negating any potential savings on building. So says AGC's Ken Simpson in a recent CoStar interview:

Kenneth Simonson joined the Associated General Contractors of America as chief economist in 2001 when commercial markets were feeling the sting of the last recession. The AGC is largest and oldest national construction trade association in the United States, representing more than 33,000 firms, including 7,500 of America’s leading general contractors, and more than 12,500 specialty contracting firms.

Simonson publishes DataDIGest, a weekly snapshot of economic and development industry statistics drawn from Census figures and other data sources. He has gradually amassed a network of contractors, purchasers and suppliers who supply information on price changes that help make his survey of materials cost one of the standards in the industry.

In July, total U.S. construction dropped a larger-than-expected 0.6% as home building fell to a seven-year low, according to the latest Commerce Department data released Monday. Nonresidential construction spending, however, continued growing in July despite the weak economy and housing slump,

"In 2007, we had a remarkable year," Simonson said. "The Census Bureau reports that 15 of the 16 nonresidential categories were up over last year -- the only exception being religious structures, which are most closely tied to residential development.

"Year-to-date figures comparing the first seven months of 2008 and 2007 show how broad-based the nonresidential strength is," Simonson said. "Total nonresidential spending through July was 14% ahead of the year-ago total."

Materials costs, however, and cutting into developers' margins, and much of the spending is on big projects that started development a year or two ago, Simonson said. We caught up with the economist to elaborate on the trends he’s seeing in construction material prices.

Continue Reading...