Construction spending sets record in November; material costs continue rising

Construction spending in November set a record for the fifth month in a row, soaring to a seasonally adjusted annual rate of $1.15 trillion, an improvement of .2 percent over October, according to the U.S. Census Bureau.

“Growth has been steady and well distributed among the major construction segments for the past several months,” said Ken Simonson, chief economist for the Associated General Contractors of America. For the first 11 months of 2005, total construction was 9 percent higher than it was for the same months in 2004.

Private residential construction grew 11 percent, public construction 8 percent and private nonresidential building 5 percent, Simonson said.

The number of construction jobs also increased in November, the U.S. Bureau of Labor Statistics reported. Employment in heavy and civil engineering and residential specialty trades was up 6 percent, residential building jobs increased 4 percent, and nonresidential building and specialty trade employment rose 2 percent and 3 percent, respectively.

Although the construction industry appears to be growing, material cost increases may have a negative effect on the industry this year.

The Bureau of Labor Statistics’ producer price index for materials and components for construction rose 1.3 percent in October and 5 percent over the past 12 months. By category of material, major contributors to the rise during the past year included:

· Copper and brass mill shapes, up 21 percent
· Asphalt, up 18 percent
· Gypsum products, up 15 percent
· Plastic construction products, up 13 percent
· Concrete products, up 10 percent
· Construction machinery and equipment, up 5 percent

Simonson said he doesn’t see material prices getting better anytime soon. While oil prices have been coming down, they are still higher than a year ago. This will keep expenses high for companies that operate off-road equipment or their own trucks, and means fuel surcharges on deliveries aren’t going away, Simonson said. Natural gas prices will also stay high this winter and probably through much of 2006, Simonson said, affecting the cost of PVC pipe, insulation, roofing materials, paints and coatings, glass, brick and other products that use natural gas as a feedstock or heat source.

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Many cement makers increased prices Jan. 1, on top of a 13 percent average increase over the past 12 months. Cement supplies are likely to be even tighter in 2006 as demand continues rising faster than domestic production or transport capacity, Simonson said.