Washington, D.C. — "Red-hot steel prices, combined with record diesel fuel costs, are making construction unaffordable," Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC), said today. Simonson was commenting on the producer price indexes (PPIs) for March reported today by the Bureau of Labor Statistics (BLS).

"The PPI for inputs to construction industries—materials used in all types of construction plus items consumed by contractors, such as diesel fuel—soared 2.1 percent in March alone," Simonson observed. "That jump was propelled by a staggering 24-percent increase in diesel fuel costs and a 5.5-percent rise in prices for steel mill products.

"Unfortunately, there is worse to come," Simonson asserted. "Steel suppliers have been burning up the fax wires announcing huge price increases and canceling previous quotes. And the Energy Information Administration reported last night that the average price of highway diesel crossed the $4 per gallon mark in all regions for the first time, with a 10-cent increase in the national average just in the past week, to $4.05 per gallon. These figures won't show up in the producer price index until next month, but contractors are paying them now.

"Public agencies as well as private owners need to adjust to these realities," Simonson noted. "Too many of them are still assuming construction costs are rising no faster than the consumer price index (CPI), when in fact the PPI for construction inputs has gone up 6.5 percent in the past 12 months and 34 percent since steel prices first surged in December 2003. That is more than double the run-up in the CPI.

"Diesel prices are now more than 60 cents a gallon higher than the $3.44 average price for gasoline," Simonson added. "This puts a triple burden on contractors, who use diesel to power offroad equipment and construction trucks and also pay a fuel surcharge on the thousands of deliveries and backhauls at a large job site.

"As the highway paving season gets under way, asphalt prices also are poised to take off," Simonson concluded. "Asphalt at the refinery cost 13 percent more in March than a year ago. But many states and the federal government are running low on highway funds because motorists and truckers have been driving less. It is imperative that Congress pass additional funding in the next few months to keep highway construction funds flowing and not choke off funds with an ill-advised moratorium."

Click on for the March PPI tables.

The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. AGC represents 33,000 firms, including 7,500 of America's leading general contractors and 12,500 specialty–contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters. Visit the AGC Web site at AGC members are "Building Your Quality of Life."