The cost of goods and services used in construction climbed by a record-setting 4.3% in May and 24.3% over the past 12 months, jeopardizing contractors’ solvency and construction workers’ employment, according to an analysis by the Associated General Contractors of America of government data released today. Association officials urged the Biden administration to move more quickly to end tariffs and quotas that are adding to construction materials costs and availability problems.
“The increase in producer prices for construction materials over the past year far outstrips contractors’ ability to charge more for projects,” said Ken Simonson, the association’s chief economist. “That gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”
The 24.3% increase in prices for materials used in construction from May 2020 to last month was nearly twice as great as in any previous year, Simonson said. Meanwhile, the producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—rose only 2.8% over the past 12 months, as contractors held their profit expectations down in order to compete for a limited number of new projects.
Items with especially steep price increases over the past year covered a wide range of materials, including products made from wood, metals, plastics, and gypsum. The producer price index for lumber and plywood more than doubled—rocketing 111% from May 2020 to last month. The index for steel mill products climbed 75.6%, while the index for copper and brass mill shapes rose 60.4% and the index for aluminum mill shapes increased 28.6%. The index for plastic construction products rose 17.5%. The index for gypsum products such as wallboard climbed 14.1%. Fuel costs, which contractors pay directly to operate their own trucks and off-road equipment, as well as through surcharges on freight deliveries, have also jumped.
Association officials said the Biden administration can provide immediate relief from some of the price pressures by ending tariffs on Canadian lumber, along with tariffs and quotas on steel and aluminum from numerous countries. Officials said the administration took a first step today by announcing agreement on a working group with the European Union that will aim to end to tariffs on steel and aluminum from the EU by the end of 2021 but that much more tariff relief is needed, and sooner. The administration should also end the duty on Canadian softwood lumber, instead of doubling the rate, as the Commerce Department has proposed, the officials added.
“The administration is right to recognize that ending tariffs on our allies is good policy,” said Stephen E. Sandherr, the association’s chief executive officer. “But there is no reason to wait six months to adopt good measures. The president should go further, by ending tariffs and quotas on steel and aluminum from other trading partners as well as the European Union.”
View producer price index data. View chart of gap between input costs and bid prices.
Related Stories
Market Data | Apr 7, 2020
7 must reads for the AEC industry today: April 7, 2020
Leo A Daly's Hotel2Hospital prototype takes shape, while the number of delayed projects reaches 2,550 in the U.S. amid coronavirus pandemic.
Market Data | Apr 3, 2020
COVID-19 cuts nonresidential construction employment in March
The construction unemployment rate was 6.9% in March, up 1.7 percentage points from the same time one year ago.
Market Data | Apr 1, 2020
February’s construction spending decline indicates what’s to come
Private nonresidential spending declined 2% on a monthly basis and is down 0.7% compared to February 2019.
Market Data | Mar 26, 2020
Architects taking action to support COVID-19 response
New AIA task force will offer insights for adapting buildings into healthcare facilities.
Market Data | Mar 26, 2020
Senate coronavirus relief bill's tax and lending provisions will help construction firms, but industry needs additional measures
Construction officials say measure will help firms cope with immediate cash flow crunch, but industry needs compensation for losses.
Market Data | Mar 25, 2020
Engineering and construction materials prices fall for first time in 40 months on coronavirus impacts, IHS Markit says
Survey respondents reported falling prices for five out of the 12 components within the materials and equipment sub-index.
Market Data | Mar 23, 2020
Coronavirus will reshape UAE construction
The impact of the virus has been felt in the UAE, where precautionary measures have been implemented to combat the spread of the virus through social distancing.
Coronavirus | Mar 20, 2020
Pandemic has halted or delayed projects for 28% of contractors
Coronavirus-caused slowdown contrasts with January figures showing a majority of metro areas added construction jobs; Officials note New infrastructure funding and paid family leave fixes are needed.
Market Data | Mar 17, 2020
Construction spending to grow modestly in 2020, predicts JLL’s annual outlook
But the coronavirus has made economic forecasting perilous.