Steel Products

AGC: Construction Costs Outpacing Contractor Charges

August 9, 2018

Construction costs have squeezed contractor profits as prices for construction material and services have climbed steeply during the past year. The producer price index for the construction industry was relatively steady in July, but jumped 8.1 percent from July 2017, said the Associated General Contractors of America in an analysis of new Labor Department data. As pre-tariff inventories diminish, contractors are likely to see additional cost pressure, said AGC.

“Although price changes for construction materials in July were mixed, contractors are likely to be hit with additional cost increases as new tariffs take hold and stocks of items purchased before the tariffs are used up,” said AGC Chief Economist Ken Simonson. “Despite the pause in cost increases in July, prices for goods and services used in construction rose over the past year at more than double the rate that contractors have raised their bid prices to put up new buildings.”

Construction costs are outpacing contractor charges to clients. Charges to erect five types of nonresidential buildings rose just 3.3 percent this year, said AGC.

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Price escalation for diesel fuel, metal and wood products was blamed for the year-over-year increase in contractor costs. The producer price index from July 2017 and July 2018 jumped 43.6 percent for diesel fuel, 17.8 percent for aluminum mill shapes, 12.4 percent for steel mill products and 16.3 percent for lumber and wood plywood. Tight truck capacity elevated freight costs 8.2 percent during the period.

“Steel, aluminum and Canadian lumber are all subject to stiff new tariffs, with the prospect that prices will soon rise even more for these and other goods used in construction,” said Simonson “In addition, the cost of delivering goods and equipment to construction sites, operating diesel-powered equipment, and hauling away dirt, debris and equipment is affected by fast-rising prices for fuel and trucking services.”

“Measures to help domestic steel and aluminum producers should not come at the expense of the many users of their products,” added Simonson.