Steel tariffs, inflation cause spike in construction costs, AGC says
The prices for many items used in construction, from steel to lumber and diesel fuel, jumped last month at the fastest rate in seven years, the Associated General Contractors of America said.
The U.S. government's producer price index for materials commonly used in construction increased 1 percent in April and are up 6.4 percent over the last year. The spike is the steepest since 2011, the AGC said.
Current market conditions are preventing many firms from passing these cost increases along to customers, said association's chief economist, Ken Simonson.
"Contractors have started to boost the prices they charge, but they are falling further behind on the cost of materials they buy," Simonson said. "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."
Certain construction materials have seen especially large cost spikes in the last year, the AGC said. Aluminum mill shapes are up 12 percent, lumber and plywood prices are up 11 percent and steel mill products have increased more than 7 percent.
The U.S. instituted a 24 percent duty on most Canadian lumber in April 2017 as part of a trade dispute. The April PPI does not reflect the steel and aluminum tariffs President Donald Trump announced in March, which further threaten the construction industry, AGC said.
"The new tariffs have the potential to undermine many of the benefits of the president's recently enacted tax and regulatory reforms," said Stephen E. Sandherr, the association's CEO. "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."