A spike in the cost of materials in March is expected to result in decreased hiring at construction companies, a New Jersey industry leader said.
“Everything is a moving target. As much as we need the construction industry to come back, people won’t make the money they once did,” said Marjorie Perry, president of MZM Construction & Management Co. “The cost of labor to materials is a 2-to-1 ratio, but if the cost of materials continue to rise, there will be less and less people working. They’ll take five guys for the job versus 10, and have five people sitting at home.”
According to an analysis released today by the Associated General Contractors of America, producer prices for construction materials prices increased by 1.4 percent between February and March, following a rise of 0.9 percent from January to February. The association attributed the price increases in March to diesel fuel costs — up 3.5 percent after rising 3 percent in February — as well as higher materials costs. According to Ken Simonson, the association’s chief economist, even though the increases are small compared to the high levels of March 2011, contractors have not been able to pass along new costs, putting a greater number of firms at the risk of insolvency.
In addition to increased materials costs, the amount contractors can charge for completed projects remained flat in March, in what Perry describes as “a catch-22, from the biggest to the smallest companies.”
“Contractors are paying peak market prices for construction materials, even as they charge bottom market prices to build new structures,” AGC CEO Stephen E. Sandherr said in a statement. “Many firms won’t be doing much hiring if they have to continue to cope with higher costs, less income and little demand for work.”
According to Perry, the increasing cost of materials is “going to hurt on the union side,” since the average union contractor in New Jersey makes $70 an hour in base pay and health care benefits, and cheaper labor is available.
To help combat rising costs of labor and materials, Perry noted that construction firms can take advantage of material providers’ offerings for 2 percent back of the purchase price if the bill is paid within 10 to 15 days, or they can partner with other firms to share resources. But since construction firms estimate the costs of materials on a per-contract basis, they do not have the option to participate in group purchasing with other firms, though Perry said that option is available for projects in the nonprofit sector.