News Release

FOR IMMEDIATE RELEASE                                                                   Contact:   Kelley Keeler, (703) 837-5310, keelerk@agc.org

Friday  September 29, 2006                                                     
Ken Simonson, (703) 837-5313, simonsonk@agc.org

AGC ECONOMIST SIMONSON RELEASES LATEST CONSTRUCTION INFLATION ALERT —
WARNS OF CONTINUING “STICKER SHOCK” OF MATERIALS COSTS

Washington, D.C.— The Associated General Contractors of America (AGC) today released its latest Construction Inflation Alert (CIA), and warned of an inflation rate for construction materials of six-to-eight percent, with periods of 10 percent increases possible.  Construction segments like highways, that are most dependent on volatile prices for petroleum products, are particularly vulnerable to such price increases.

“Private owners, public agencies that do budgeting and design, and contractors should all be aware that construction materials prices are likely to keep rising at a much faster rate than the three-to-four percent increase in the consumer price index (CPI) or broad producer price index (PPI) for finished goods,” said AGC's Chief Economist Ken Simonson.  “If these increases continue, I'm concerned that the inflation rate for construction materials could be double the rate of overall inflation.”

Simonson continued, “The extreme cost increases or volatility of some construction inputs are proving troublesome to contractors because they have been sudden, extreme and unexpected.”

For instance, the price of steel soared 50-to-60 percent in the first half of 2004 after years of flat or falling prices. Steel prices declined slightly in late 2004 and most of 2005 but have risen again in 2006.  Meanwhile, other metals costs, particularly copper, have jumped even more than steel mill products.

Two factors make construction vulnerable to above-average cost increases. Contractors are generally locked into fixed quantities of materials, and construction costs are vulnerable to transportation costs and bottlenecks.  Unlike consumer electronics makers, for example, contractors cannot generally make a building or a highway smaller or lighter.  Contractors also require physical delivery of large quantities of goods to a specific location, in many cases from around the world and any number of influences can drive up delivered costs.

EDITOR'S NOTE: AGC's CIA is an analysis by Simonson of overall construction materials costs which finds that s ince early 2004, the construction industry has been buffeted by a succession of steep price increases affecting a variety of materials. Visit www.agc.org/Sept06CIA to view the full report.

The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. AGC represents more than 32,000 firms, including 7,000 of America's leading general contractors, and over 11,000 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 www.agc.org .  AGC members are "Building Your Quality of Life.”