The cost of goods and services used in construction climbed by a record-setting 4.3% in May and 24.3% over the past 12 months, jeopardizing contractors’ solvency and construction workers’ employment, according to an analysis by the Associated General Contractors of America of government data released today. Association officials urged the Biden administration to move more quickly to end tariffs and quotas that are adding to construction materials costs and availability problems.
“The increase in producer prices for construction materials over the past year far outstrips contractors’ ability to charge more for projects,” said Ken Simonson, the association’s chief economist. “That gap means contractors are being hit with huge costs that they did not anticipate and cannot pass on.”
The 24.3% increase in prices for materials used in construction from May 2020 to last month was nearly twice as great as in any previous year, Simonson said. 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—rose only 2.8% over the past 12 months, as contractors held their profit expectations down in order to compete for a limited number of new projects.
Items with especially steep price increases over the past year covered a wide range of materials, including products made from wood, metals, plastics, and gypsum. The producer price index for lumber and plywood more than doubled—rocketing 111% from May 2020 to last month. The index for steel mill products climbed 75.6%, while the index for copper and brass mill shapes rose 60.4% and the index for aluminum mill shapes increased 28.6%. The index for plastic construction products rose 17.5%. The index for gypsum products such as wallboard climbed 14.1%. Fuel costs, which contractors pay directly to operate their own trucks and off-road equipment, as well as through surcharges on freight deliveries, have also jumped.
Association officials said the Biden administration can provide immediate relief from some of the price pressures by ending tariffs on Canadian lumber, along with tariffs and quotas on steel and aluminum from numerous countries. Officials said the administration took a first step today by announcing agreement on a working group with the European Union that will aim to end to tariffs on steel and aluminum from the EU by the end of 2021 but that much more tariff relief is needed, and sooner. The administration should also end the duty on Canadian softwood lumber, instead of doubling the rate, as the Commerce Department has proposed, the officials added.
“The administration is right to recognize that ending tariffs on our allies is good policy,” said Stephen E. Sandherr, the association’s chief executive officer. “But there is no reason to wait six months to adopt good measures. The president should go further, by ending tariffs and quotas on steel and aluminum from other trading partners as well as the European Union.”
View producer price index data. View chart of gap between input costs and bid prices.
Related Stories
Market Data | Aug 28, 2017
U.S. hotel construction pipeline is up 7% year-over-year
For the economy, the rate of growth may be low but it’s running on all cylinders.
Market Data | Aug 23, 2017
Architecture Billings Index growth moderates
“The July figures show the continuation of healthy trends in the construction sector of our economy,” said AIA Chief Economist, Kermit Baker.
Architects | Aug 21, 2017
AIA: Architectural salaries exceed gains in the broader economy
AIA’s latest compensation report finds average compensation for staff positions up 2.8% from early 2015.
Market Data | Aug 20, 2017
Some suburban office markets are holding their own against corporate exodus to cities
An analysis of mortgage-backed loans suggests that demand remains relatively steady.
Market Data | Aug 17, 2017
Marcum Commercial Construction Index reports second quarter spending increase in commercial and office construction
Spending in all 12 of the remaining nonresidential construction subsectors retreated on both an annualized and monthly basis.
Industry Research | Aug 11, 2017
NCARB releases latest data on architectural education, licensure, and diversity
On average, becoming an architect takes 12.5 years—from the time a student enrolls in school to the moment they receive a license.
Market Data | Aug 4, 2017
U.S. grand total construction starts growth projection revised slightly downward
ConstructConnect’s quarterly report shows courthouses and sports stadiums to end 2017 with a flourish.
Market Data | Aug 2, 2017
Nonresidential Construction Spending falls in June, driven by public sector
June’s weak construction spending report can be largely attributed to the public sector.
Market Data | Jul 31, 2017
U.S. economic growth accelerates in second quarter; Nonresidential fixed investment maintains momentum
Nonresidential fixed investment, a category of GDP embodying nonresidential construction activity, expanded at a 5.2% seasonally adjusted annual rate.
Multifamily Housing | Jul 27, 2017
Apartment market index: Business conditions soften, but still solid
Despite some softness at the high end of the apartment market, demand for apartments will continue to be substantial for years to come, according to the National Multifamily Housing Council.