AGC Says Construction Costs Climbed in March

April 11, 2018 - The Associated General Contractors of America (AGC) reports that analysis of U.S. Labor Dept. figures shows that construction costs climbed again in March.

The AGC analysis says that prices went up for a wide range of building materials, including many that are subject to proposed tariffs that could drive prices still higher and cause scarcities.

Association officials warned that tariffs on some items might lead to project delays and cancellations if they become unobtainable or too expensive for current budgets.

"Prices increased for many items in March, even before tariffs announced for steel, aluminum, and many items imported from China have taken effect," said the association's chief economist, Ken Simonson. "Steel service centers and other suppliers are warning there is not enough capacity at U.S. mills or in the trucking industry to deliver orders on a timely basis. Thus, contractors are likely to experience still higher prices as well as delivery delays in coming months."

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 0.8% in March, and 5.8% over 12 months. The year-over-year increase was the steepest since 2011, the economist noted.

"Many items contributed to the latest round of increases," Simonson said. "Moreover, today's report only reflects prices charged as of mid-March. Since then, some tariffs have taken effect, many others have been proposed, and producers of steel and concrete have implemented or announced substantial additional increases."

From March 2017 to March 2018, the producer price index jumped by 13.7% for lumber and plywood, 11.4% for aluminum mill shapes, and 4.9% 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 March price index—on steel, aluminum, and numerous Chinese construction products.

Other construction inputs that rose sharply in price from March 2017 to March 2018 include diesel fuel, 39.7%; copper and brass mill shapes, 11.2%; gypsum products, 8.4%; and plastic construction products, 5.8%. In addition, concrete and other suppliers announced significant price hikes that were due to take effect in April.

Construction officials said the announced tariffs have already triggered a surge of orders that mills say they cannot fill on a timely basis, which will create budget problems, delays, and possibly cancellations for infrastructure and other public projects. They said adequate funding of infrastructure would be a better way to foster demand for domestic steel and aluminum without harming contractors.

"Tariffs will harm contractors that are currently working on projects for which they have not bought materials and will disrupt budgets for future construction," said Stephen E. Sandherr, the association's chief executive officer. "The best way to help the U.S. steel and aluminum sector is to continue pushing measures, like regulatory reform and new infrastructure funding that will boost demand for their products as the economy expands."