The cost of goods used in construction jumped in April at the fastest year-over-year rate since 2011, with ongoing increases for a wide range of building materials, including many that are subject to proposed tariffs that could drive prices still higher and cause scarcities, according to an analysis by the Associated General Contractors of America of Labor Department data released today. Association officials said that the new data indicates many firms are already being squeezed by higher materials prices that they are unable to pass along to their customers.
"Contractors have started to boost the prices they charge, but they are falling further behind on the cost of materials they buy," said the association's chief economist, Ken Simonson. "This imbalance poses two risks—either contractors will suffer decreased profit margins or project owners with fixed budgets will cut back on the projects they undertake."
The producer price index for inputs to construction industries, goods—a measure of all materials used in construction projects including items consumed by contractors, such as diesel fuel—rose 1.0% in April alone and 6.4% over 12 months. The year-over-year increase was the steepest since 2011, the economist noted. Meanwhile, the producer price index for nonresidential construction—a measure of what contractors say they would charge to put up a mix of school, office, warehouse, industrial and health care buildings—increased 1.1% for the month and 4.2% year-over-year.
"The gap between the 6.4% rise in the cost of construction goods and the 4.2% increase in prices charged is ominous," Simonson observed. "Unfortunately, the gap may widen further if tariffs or quotas push up costs further for the many steel, aluminum and wood products used in construction."
From April 2017 to April 2018, the producer price index jumped by 11.9% for aluminum mill shapes, 11.0% for lumber and plywood and 7.4% for steel mill products. The U.S. has been in a dispute with Canada over lumber imports, has imposed tariffs on several types of steel and has announced or recently imposed additional tariffs—not reflected in the April price index—on steel, aluminum and numerous Chinese construction products.
Other construction inputs that rose sharply in price from April 2017 to April 2018 include diesel fuel, 41.6%; copper and brass mill shapes, 10.5%; gypsum products, 7.5%; ready-mix concrete, 6.9%; and truck transportation of freight, 6.0%.
Association officials said the Trump Administration's tariffs pose a real threat to the continued growth of the construction industry. As steel, aluminum, and wood prices continue to surge, contractors will be forced to charge more, potentially discouraging or delaying new infrastructure and development projects.
"The new tariffs have the potential to undermine many of the benefits of the President's recently enacted tax and regulatory reforms," said Stephen E. Sandherr, the association's chief executive officer. "Instead of investing their tax savings in new personnel and equipment, many firms are being forced to use them to cover increasing steel and aluminum costs."
View producer price indexes for construction.
Related Stories
Market Data | Jul 8, 2020
North America’s construction output to fall by 6.5% in 2020, says GlobalData
Even though all construction activities have been allowed to continue in most parts of the US and Canada since the start of the COVID-19 pandemic, many projects in the bidding or final planning stages have been delayed or canceled.
Market Data | Jul 8, 2020
5 must reads for the AEC industry today: July 8, 2020
AEMSEN develops concept for sustainable urban living and nonresidential construction has recovered 56% of jobs lost since March.
Market Data | Jul 7, 2020
Nonresidential construction has recovered 56% of jobs lost since March employment report
Nonresidential construction employment added 74,700 jobs on net in June.
Market Data | Jul 7, 2020
7 must reads for the AEC industry today: July 7, 2020
Construction industry adds 158,000 workers in June and mall owners open micro distribution hubs for e-commerce fulfillment.
Market Data | Jul 6, 2020
Nonresidential construction spending falls modestly in May
Private nonresidential spending declined 2.4% in May and public nonresidential construction spending increased 1.2%.
Market Data | Jul 6, 2020
Construction industry adds 158,000 workers in June but infrastructure jobs decline
Gains in June are concentrated in homebuilding as state and local governments postpone or cancel roads and other projects in face of looming budget deficits.
Market Data | Jul 6, 2020
5 must reads for the AEC industry today: July 6, 2020
Demand growth for mass timber components and office demand has increased as workers return.
Market Data | Jul 2, 2020
Fall in US construction spending in May shows weakness of country’s construction industry, says GlobalData
Dariana Tani, Economist at GlobalData, a leading data and analytics company, offers her view on the situation
Market Data | Jul 2, 2020
6 must reads for the AEC industry today: July 2, 2020
Construction spending declines 2.1% in May and how physical spaces may adapt to a post-COVID world.
Market Data | Jul 1, 2020
Construction spending declines 2.1% in May as drop in private work outweighs public pickup
Federal infrastructure measure can help offset private-sector demand that is likely to remain below pre-coronavirus levels amid economic uncertainty.