Construction costs accelerated again in June, with steep increases for a wide range of building and road construction materials as tariffs and quotas against foreign goods come into effect, according to an analysis by the Associated General Contractors of America (AGC) and new data from the Bureau of Labor Statistics (BLS). Contractors’ costs for a wide range of materials and services have escalated dramatically in the past few months. Section 301 tariffs that have been announced since this price data was collected will push costs up even higher.
The BLS producer price index for aluminum mill shapes spiked 20% from June 2017 to June 2018, 17.4% for copper and brass mill shapes, and 12.3% for steel mill products for the same period. Other construction inputs that rose sharply during this period include lumber and plywood, 18.3%; asphalt felts and coatings, 7.5%; ready-mixed concrete, 5.5%; and paving mixtures and blocks, 5.0%. The BLS producer price index for Inputs to Construction Industries-Goods (a measure of all materials used in construction projects including items consumed by contractors) shot up 8.1% over the last 12 months in July. The year-over-year increase was the steepest seen since October 2008.The tariffs and quotas have combined with a heated building market and overall uncertainty to create volatile construction pricing. Clearly the price increases captured by the Bureau of Labor Statistics data exceed the anticipated impacts from new sanctions. While the 9.6% increase tracked by the BLS only applies to material inputs representing 55% to 65% of the typical project construction cost, the remaining costs are under rising price pressure as well. When contractors in busy markets are contractually required to hold pricing through the duration of a project, they will pass on that risk and uncertainty to owners in the form of elevated pricing. Those contractors are faced with uncertain tariff impacts, potential delays due to material allocations, rising energy costs, shipping surcharges, newly negotiated Master Trade Agreements (MTA’s), labor shortages, and resulting loss of productivity. Historically in slower markets and periods, many of these costs would be “absorbed” by contractors willing to accept more risks to procure work in a more competitive environment.