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9 comments

Can You Afford More Construction Materials?

Posted March 25, 2011 8:30 AM by Steve Melito

Prices are up. Profit margins are down. Meanwhile, the construction market is flat as a board. Materials like oil and metals are becoming more expensive as global demand for them grows. The developing world has an insatiable appetite, of course, so your local building contractor may want to start saving some money by packing a lunch instead of eating out.

Although wholesale prices have risen more slowly than consumer ones, the price index for construction materials is now 6.1% higher than a year ago, reports Reed Construction Data. The increase from January to February 2011 was a modest 1.1%, but prices have risen at a 12% annual pace over the last three months.

The news about construction materials isn't all gloom-and-doom, however - at least not yet. Cement and gypsum prices have fallen over the last three months, and even copper has recovered from its all-time high. That's good news if you need to buy raw materials right now, but what about manufactured products such as cement boards or tiles, gypsum wallboard, and copper pipes? Eventually, rising costs are passed through to manufactured products. It doesn't help that labor overhead and construction services are becoming more expensive, too. As for lumber, it's already in-line with consumer costs.

Are expectations of rising prices affecting your plans to purchase construction materials in 2011?

Source: Reed Construction Data

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#1

Re: Can You Afford More Construction Materials?

03/28/2011 10:16 AM

As a small painting contractor, I'm fully aware of the increasing material prices.

I used to bid work with all materials included in the bid. Problem was, I was losing job after job over the past couple of years. I don't know if I was being underbid, if they decided to do it themselves, or just not do it at all.....probably a combination.

One thing I realized, is that clients have no clue what materials cost.

I don't know if this would be applicable to anyone else on here, but what I've done, (and I'm getting work again), was to lower my labor price a little, and bid the jobs for labor only.....................I can either get the materials and they can reimburse me, or I'll give them the quantities and they can go get it.

I don't feel as if this is at all dishonest on my part. They can see that they are getting a reasonable labor price. I'm just removing myself from the sticker shock process. They still get the sticker shock, but it's after the contract is signed, and it's based solely on the material cost, not my entire bid.

They are still paying the same amount for the job, but they know I'm not ripping them off on the materials, and the labor price is good......................it's all a matter of perception.

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#2
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Re: Can You Afford More Construction Materials?

03/29/2011 8:15 AM

was to lower my labor price a little, and bid the jobs for labor only.....................I can either get the materials and they can reimburse me, or I'll give them the quantities and they can go get it.

I think that's quite a reasonable approach and is just the opposite from being dishonest.

Regarding loosing job after job. Have you thought about following up with them to find out why?

Perhaps a simple pre-stamped post card questionnaire for the them to check off with a brief explanation of why you are sending it (again, but honest...you are trying to improve your services) and that you would appreciate their feedback.

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#3
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Re: Can You Afford More Construction Materials?

03/29/2011 11:29 AM

Hey JB,

I appreciate the thought, but it's actually more of a case of the phone not ringing, than losing jobs.

On the jobs I'm losing, I know why.

People are getting 6-8 bids now, instead of 2-3 for a given project..........and going with the absolute lowest.

People in the trades are working for next to nothing, just to get the work.

Within the trades, painting is fairly low priority. It's also something that homeowners can do themselves, so they'll get a few bids just to see how much money they'll save, and go ahead and tackle it on their own.

I'm know I'm not alone. With material prices, gasoline and everything else going up across the board, there are many people and industries that are having to bite the bullet and lower the profit margin to stay in business.

In response to the blog, there really isn't a choice as far as paying for materials if we want to stay in business. Whatever the materials cost is what we have to pay. I suspect that once Japan starts heavily rebuilding, we'll be feeling another ripple of increases in raw materials around the globe............including fuel.

Just a little off topic sideline. I know a lot of people that are out of work that aren't counted among the official unemployment numbers............sales, real estate, construction, 1099 contract workers, etc. I wonder what the true unemployment rate is?

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#4
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Re: Can You Afford More Construction Materials?

03/29/2011 12:19 PM

Well I wish you luck. In the short run the low price may win, but I think in the long run, hard work, good work ethic and quality work will pay off (at least that's my hope).

As far as true unemployment, yeah, it's difficult to say. I think I read that the government considers you employed if you work for 8 hours a month they consider you employed. I'll have to check the Bureau of Labor Statistics to see if that's true. Seems like that's where I read it the first time.

Okay, I just checked the bureau of labor statistics site (here) which states (among other things) "For example, people are considered employed if they did any work at all for pay or profit during the survey week. This includes all part-time and temporary work, as well as regular full-time, year-round employment."

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Re: Can You Afford More Construction Materials?

03/29/2011 12:32 PM

I'll be alright. I know how to do a lot of other things besides paint..........which I am branching into now.

That link applies to the census. I wonder how they track these month to month numbers. I always assumed it was through new applications and continuing unemployment collection. There are a lot of people that don't qualify for unemployment compensation and aren't counted at all.

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Re: Can You Afford More Construction Materials?

03/29/2011 12:43 PM

I don't believe it's only for the census. The U.S. BLS surveys weekly. If you notice at the top of the page the heading is Current Population Survey. If you select the home page for CPS you will see at the top that it explains:

The Current Population Survey (CPS) is a monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics. It provides a comprehensive body of data on the labor force, employment, unemployment, persons not in the labor force, hours of work, earnings, and other demographic and labor force characteristics.

If you dig deep enough you might see the information you are looking for. If not you might be able to derive it from other data. Something like starting with the total U.S. population remove the number of employed persons (and not counting those who don't qualify for unemployment comp, etc.) remove those who do qualify and those who are too old or young to be in the labor force. I don't know if that will work, but it might give you an order of magnitude of the missing people.

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Re: Can You Afford More Construction Materials?

03/29/2011 12:56 PM

Thanks for the links.

I don't care enough about it to go digging.......knowing the true numbers won't do me any good. I've heard estimates of up to 17% as a real unemployment number. It wouldn't surprise me.

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#8
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Re: Can You Afford More Construction Materials?

03/29/2011 8:24 PM

historically, it has always been War that brought countries out of depressions.

... which is kind of odd... consider the following:

1) the country is broke.. people are going hungry.. and homeless etc. will take any job, even if it doesn't pay enough.

2) war breaks out (increased stress?)

3) the government mandates the production of war materials... business starts producing. labour lines up to work.. virtually free labour.. room and board, etc.

4) the government issues bonds.. which borrows money from the people, in order to pay for the war. (they also increase the inflation rate, and skim the value off the top, leaving the people to absorb the loss in spending power)

5) business streamlines and is able to produce more for less, which decreases the costs.. and when the war is over, the wages can increase, and an era of growth occurs... (increased productivity and increased spending money with the workers)

The fact that the average worker is blind to the fact that they have always paid for everything is kind of shocking. It is the average people who create value, starting with food, shelter, clothing, etc... and it is not the average people who become super wealthy... or who survive depressions very well.

things are definitely not equal for all.

Chris

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#9

Re: Can You Afford More Construction Materials?

04/29/2011 9:43 AM

Hey Guys,

My building company is based in Grimsby, Uk, and I can tell you we're having exactly the same problems here - feel like I'm chewing a brick at the moment when it comes to expanding overheads and diminishing profits.

My company, G Denny builders Grimsby, has luckily stayed afloat during these turbulent times, but I unfortunately can't say the same for a number of local colleagues as well as merchants and suppliers.

Let's hope things settle down sooner rather than later!!

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