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Small Building Contractors Squeezed

Building contractors in the United States are feeling squeezed by rising material costs.

An article in the Detroit Free Press takes a look at the plight of one small contractor in Michigan:

Nearly every day, Lee Jasinski, co-owner of a Whitmore Lake commercial contracting company, gets word from one of his suppliers about another price increase.

A letter informs him steel is going up. A memo reminds him of an increase in insulation. A fax says drywall is going up.

Consider this: Galvanized steel, which Jasinski uses to make trusses and wall panels, went up 10 percent the first of the year. Now, his suppliers tell him it’s expected to increase by 30 percent to 40 percent by midyear. Insulation went up three times last year and is expected to go up another 7 percent in 2004. Drywall is expected to increase by about 7 percent.

The biggest culprit is steel. Even though the U.S. steel tariffs were lifted in December and contractors had expected prices to go down, the opposite has happened. Demand for steel is higher in the United States due to low interest rates that have spawned a construction boom. Also, favorable foreign currency exchange rates (i.e., a weak American dollar) and increased demand for steel from China have prompted suppliers to sell to markets outside the United States.

Small building contractors can absorb only so much in increased material costs. Eventually the increases have to be passed on to consumers and end users. Meaning, inflation?