Inflation Signals Trouble Ahead

By Carl Molesworth | September 28, 2010

Recently I called up a contractor in the Northwest and inquired about doing a feature story involving a project his company was building. The man expressed some reluctance at first.

"I'm already turning business away," he said. "I don't need the phone ringing more than it is already."

That caught me by surprise. Usually, contractors are happy to get exposure in a PB&E feature story. The few who decline usually do it because they have had a bad experience in other media in the past.

But this contractor's reasoning seemed to fly in the face of current conditions in the marketplace. Sure, he runs a company with a good reputation and a solid list of regular clients. Still, everything I read indicates tough times are right around the corner for the Northwest construction industry, as the national economic downturn spreads toward this far corner of the country. Inflation is already here.

Consider this July 15 quote from AGC's well respected chief economist, Ken Simonson: "Surging prices for diesel fuel, asphalt, steel and other materials are clobbering construction budgets."

Simonson was commenting on the producer price index for June reported by the Bureau of Labor Statistics. The PPI for inputs to construction industries — materials used in all types of construction plus items consumed by contractors, such as diesel fuel — surged 10.4 percent over the past 12 months. The index for highway and street construction leaped 18.9 percent.

"Bad as those figures sound, the increases in asphalt and steel costs have been even worse since these prices were collected in mid-June," Simonson asserted. "In the first two weeks of July, asphalt prices have jumped by 40 percent in several parts of the country. Prices for rebar ... soared $200 per ton."

Regarding diesel fuel, the Energy Information Administration reported that the average price of highway diesel hit a new record of $4.76 per gallon, up 12 cents just in the past two weeks.

"These figures won't show up in the PPI until next month, but contractors are paying them now," Simonson noted.

Simonson's comments went on to note rising prices of other commodities as well, but you get the idea. Contractors caught by rising prices in the middle of a project are getting hammered. And even if the demand for new construction were to remain strong here, inflation is going to gobble up owners' dollars and depress the scope and number of projects being built in the future.

In the end, I was able to convince the contractor in question to let me do the story. I don't know if my reasoning to him that good times generally don't last was a factor in his decision. Now I just have to save up enough money to buy a tank of gas so I can go visit his job site.

A Century of Service

In honor of this year's 100th anniversary of the Briggs & Stratton Corp., I thought about trying to figure out how many hours I've spent in my lifetime walking behind a lawn mower powered by a Briggs & Stratton engine. But I gave up. It was too depressing.

Still, I have to tip my hat to Briggs & Stratton, the world's largest manufacturer of air-cooled gasoline engines for the outdoor power equipment industry, for its century of service to the backyards of America.

Stephen F. Briggs and Harold M. Stratton started the company in 1908, and over the years it produced engine-powered bicycles, electric refrigerators, an electric hybrid automobile prototype, coin-operated paper towel dispensing machines, fuses, auto igniters, locks, keys, and more.

Today, Briggs & Stratton has grown to employ more than 8,000 people with 10 manufacturing facilities globally. The company has reinvented itself with its introduction into the end products business. Now, in addition to manufacturing air-cooled gasoline engines, Briggs & Stratton produces generators, pressure washers, pumps, walk-behind and riding lawn mowers, trimmers, hedgers, and more. Globally, the company's engines can be found on diverse applications such as milking machines in Mexico, sugar cane crushers in Puerto Rico and fishing boats in Vietnam, to name a few.

Still, when I hear Briggs & Stratton my mind jumps immediately to the lawn that needs mowing at my home. I just can't help it.