An unprecedented leap in the price of goods used in construction and supply-chain disruptions are wreaking hardships on contractors and slowing projects, according to an analysis by the Associated General Contractors of America of government data released today. The association posted a Construction Inflation Alert to update contractors and their clients about the latest developments. Association officials urged the Biden administration to end a variety of tariffs and quotas on imported construction inputs and to help ease domestic supply-chain problems.
“Today’s producer price index report documents just some of challenges contractors are experiencing with fast-rising materials costs, lengthening or uncertain delivery times, and rationing of key inputs,” said Ken Simonson, the association’s chief economist. “These problems threaten to drive up the cost and completion time for many vital projects and potentially set back the recovery in construction employment.”
Prices for materials and services used in construction and contractors’ bid prices both declined at the beginning of the pandemic but have diverged in the past year, Simonson said. A government index that measures the selling price for goods used construction jumped 3.5% from February to March and 12.9% since March 2020. Both the monthly and yearly increases were the highest recorded in the 35-year history of the series, he noted. 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—increased only 0.5% last month and 1.7% over the past 12 months.
“These material cost increases—steep as they are—tell only part of the story,” Simonson added. “They are based on prices the government collected a month ago, and they fail to capture the notices contractors are receiving daily about longer lead times, shipments held to a fraction of previous orders, and other challenges.”
Association officials said some of the supply chain problems are being caused by the pandemic, which is leaving manufacturers and shippers shorthanded amid growing demand for a host of products. But they added that federal policies, particularly tariffs and quotas on key building materials like lumber and steel, are also contributing to price spikes, supply shortages, and delivery delays. They urged the administration to remove those import barriers and explore ways to help unclog shipping backups.
“The Biden administration must address soaring lumber and steel costs and broader supply chain woes with the same energy they are putting into dealing with shortages of automotive microchips,” said Stephen E. Sandherr, the association’s chief executive officer. “Without tariff relief and other measures, construction employers will have little ability to invest in new equipment and hire new employees.”
View producer price index data. View chart of gap between input costs and bid prices. View AGC’s Alert.
Related Stories
AEC Tech | Jan 16, 2020
EC firms with a clear ‘digital roadmap’ should excel in 2020
Deloitte, in new report, lays out a risk mitigation strategy that relies on tech.
Market Data | Jan 13, 2020
Construction employment increases by 20,000 in December and 151,000 in 2019
Survey finds optimism about 2020 along with even tighter labor supply as construction unemployment sets record December low.
Market Data | Jan 10, 2020
North America’s office market should enjoy continued expansion in 2020
Brokers and analysts at two major CRE firms observe that tenants are taking longer to make lease decisions.
Market Data | Dec 17, 2019
Architecture Billings Index continues to show modest growth
AIA’s Architecture Billings Index (ABI) score of 51.9 for November reflects an increase in design services provided by U.S. architecture firms.
Market Data | Dec 12, 2019
2019 sets new record for supertall building completion
Overall, the number of completed buildings of at least 200 meters in 2019 declined by 13.7%.
Market Data | Dec 4, 2019
Nonresidential construction spending falls in October
Private nonresidential spending fell 1.2% on a monthly basis and is down 4.3% from October 2018.
Market Data | Nov 25, 2019
Office construction lifts U.S. asking rental rate, but slowing absorption in Q3 raises concerns
12-month net absorption decelerates by one-third from 2018 total.
Market Data | Nov 22, 2019
Architecture Billings Index rebounds after two down months
The Architecture Billings Index (ABI) score in October is 52.0.
Market Data | Nov 14, 2019
Construction input prices unchanged in October
Nonresidential construction input prices fell 0.1% for the month and are down 2.0% compared to the same time last year.
Multifamily Housing | Nov 7, 2019
Multifamily construction market remains strong heading into 2020
Fewer than one in 10 AEC firms doing multifamily work reported a decrease in proposal activity in Q3 2019, according to a PSMJ report.