Recovery shaky for construction sector

Wichita commercial builders are fearful of another dip in their industry as material costs rise, public building projects disappear and the private market remains sluggish at best.

Kansas isn't much different from the rest of the nation, either, according to officials at the Associated General Contractors of America.

Contractors suffered from a new round of price increases for many key materials in May, according to Ken Simonson, AGC's chief economist.

At the same time, public projects — many driven by stimulus spending — that have been the backbone of the struggling construction industry are winding down while private investment remains sporadic.

The ongoing cost squeeze threatens to force more construction employees into unemployment unless public officials lower barriers to public and private investment, Simonson said.

"The materials I've heard the biggest concern about are construction plastics like PVC pipe, insulation, vapor barriers," Simonson said.

"Steel had taken a bit of a breather, but there's renewed concern about it in the last couple of weeks. It's bad news, because one material after another jumps and the contractors can't pass the costs through because the competition for work is so fierce."

Simonson said there were substantial price increases in May for wallboard and other gypsum products, which rose 4.3 percent from April.

Other price hikes he cited included asphalt paving mixtures, 3.2 percent; construction plastics, 1.8 percent; and steel mill products, 1.1 percent.

Diesel fuel is down 3.2 percent for the month but is up 39.5 percent since May 2010, Simonson said. Copper and brass mill shapes are down 4 percent since April but up 17 percent year-over-year.

Same story in Kansas, said Ben Hutton, president of Wichita's Hutton Construction.

Hutton, Eby Construction President Mike Grier and Dave Wells, president of Wichita's Key Construction, said almost every construction material except wood has been hit by the price increases.

"It's certainly a large risk with our industry at any time, and it's even larger or magnified at this time by the scarcity of work," Hutton said.

"One of my concerns over the past year has been the public projects, which are happening at an unsustainable rate. My fear is they'll die out before the private work picks up. We may have a second tough spot coming for our industry."

The problems posed by materials price volatility are tied directly to bid lettings, Grier said.

"Pricing really poses a problem now if the bid doesn't go to award for 60, 90 or 120 days," Grier said.

"If it's 30 to 45 days, the bids can be locked in and the pricing you give on bid day can be honored. If it's delayed beyond that, you can almost count on price escalation."

Wells is a little more optimistic about the immediate future of the Wichita commercial construction industry.

"We're picking up some definite increases in the level of private work. People are talking," he said.

"And I can't say that I've noticed public work drying up in total, either. We're fortunate to be in the sectors that we're in, and I'd say 2011 looks fairly bright for us."

Hutton agreed.

"The private market is starting to move, but I'll qualify that by saying people are starting to talk about projects more," he said.

"It's encouraging, but we haven't seen a whole lot of movement in terms of signed contracts and moving dirt. I think projects are coming, though."

Simonson has a more pessimistic view of the national construction scene, driven by the price volatility.

"The industry went from a free fall to just plain flat," he said. "There's really nothing out there allowing you to say that there's a recovery.

"But I think there's a definite risk we go back into a worse decline. My own feeling is that we'll see uneven recovery — slow and very spotty."