In an analysis of the U.S. Department of Labor’s producer price indexes and employment cost indexes, the Associated General Contractors (AGC) of America found that material prices rose nearly 9 percent from May 2017 to May 2018—the largest annual increase since July 2011.
In the same time frame, the price of construction has not kept pace with the price of materials, raising 4.2 percent, which suggests, according to the association’s chief economist, Ken Simonson, “contractors are facing a severe squeeze on costs for both ongoing and new projects.”
The construction-related materials that have experienced, in Simonson’s words, “unusually large increases,” since last May include aluminum mill shapes (17.3 percent), lumber and plywood (13.9 percent), copper and brass mill shapes (13.8 percent), steel mill products (10.5 percent), diesel fuel (44.5 percent), asphalt felts and coatings (8.9 percent), ready-mixed concrete (6.5 percent) and paving mixtures and blocks (5.2 percent).
Material prices have been on the rise in general, increasing 2.2 percent in May alone. However, the AGC’s latest analysis does not include data collected after President Trump’s tariffs went into effect for Canada, Mexico and the European Union (EU) on May 31. The duties—25 percent on steel and 10 percent on aluminum—are expected to drive material costs even higher.
Some predict the tariffs will harm the industry, slowing growth. According to Bloomberg, the tariffs and the uncertainty around their effects have caused developers to delay or consider delaying capital projects, especially those who source material from abroad. The AGC reported that U.S. steel mills have been swamped with orders that exceed capacity, which will likely cause construction delays and force budget overruns. On a positive note, Bloomberg reported these steel-town communities are experiencing growth as mills hire additional workers to attempt to keep up with the demand.
The issue is sure to be compounded as Canada, Mexico and the EU have promised to impose reciprocal tariffs on goods originating from the U.S. Other countries are also getting in on the action—China has promised to impose tariffs of the “same scale and intensity” on U.S. goods, and the Indian government has proposed duties on 30 U.S. products.