This story was first published in Builder.
In a new analysis of Labor Department data, the Associated General Contractors of America have found that the costs of goods and services used in construction have risen at steep rates over the past year, and that the costs of goods used in construction rose at the fastest year-over-year rate since 2011 in April of this year.
"Contractors have started to boost the prices they charge, but they are falling further behind on the cost of materials they buy," says Ken Simonson, chief economist of the Associated General Contractors of America. "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."
Many of the goods affected have been subject to recently enacted or proposed import tariffs. Over the past year, the U.S. has been in a dispute with Canada over lumber imports, imposed tariffs on several types of steel, and has announced or recently imposed new tariffs on steel, aluminum and Chinese construction products.
According to the association’s analysis, the producer price index for inputs to construction industries for goods rose by 1.0% this April alone, and by 6.4% over the past 12 months. This year-over-year rise in material costs was the steepest recorded since 2011. The producer price for non-residential construction, or the prices contractors say they would charge for non-residential work, has also risen 1.1% in April, and by 4.2% YOY.
"The gap between the 6.4% rise in the cost of construction goods and the 4.2% increase in prices charged is ominous," Simonson says. "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."
Between April 2017 and April 2018, the producer price index for aluminum mill shapes rose by 11.9%. The index for lumber and plywood rose 11.0%, and the index for steel mill products rose 7.4%.
Other construction inputs that rose sharply in price during this period are diesel fuel, which rose 41.6%, copper and brass mill shapes, which rose 10.5%, gypsum products, which rose 7.5%, ready-mix concrete, which rose 6.9%, and truck transportation of freight, which rose 6.0%.
According to association officials, the Trump Administration’s tariffs “pose a real threat to the continued growth of the construction industry.” If materials prices to continue to rise, the association says, contractors will have to offset the price increases by raising the price of their services or under-funding other areas of their business. This could discourage or delay new development and infrastructure projects.
"The new tariffs have the potential to undermine many of the benefits of the President's recently enacted tax and regulatory reforms," says Stephen E. Sandherr, chief executive officer of the Associated General Contractors of America. "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."
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