Steel Markets

AGC: Construction Costs Move Sharply Higher in October

November 17, 2022

The prices contractors pay for construction materials and services — chiefly for new nonresidential construction — jumped 20.2% year-on-year (YoY) in October and were up 3% month-on-month (MoM), the Associated General Contractors of America (AGC) reported in its latest analysis of government data.

AGC cautioned that higher construction costs could undermine demand for projects, and urged the White House to remove tariffs on key materials as supply chains remain a challenge.

“Although some materials costs have moderated, other costs are still climbing steeply, while contractors are incurring added expenses from delays caused by supply-chain disruptions, shortages of skilled labor, and rising interest rates,” said Ken Simonson, AGC’s chief economist.

Projects, as a result, may be delayed or canceled “as the price to complete them continues to increase, threatening to undermine overall demand,” Simonson added.

Citing the Bureau of Labor Statistics, AGC said that the Producer Price Index (PPI) for inputs to nonresidential construction — the prices charged by goods producers and service providers such as distributors and transportation firms — rose 0.2% MoM in October and 11.2% YoY.

Other costs not captured by the PPI but directly impacting projects such as late deliveries, rising wage rates, overtime pay, and other financial costs associated with delays, are further weighing on contractors, AGC argued.

Meanwhile, several other input costs posted double-digit increases last month versus year-ago levels, while others were mixed.

The PPI for diesel fuel soared 9.8% for the month and 61.5% YoY. The index for cement rose by 2.5% in October, pushing the YoY increase to 13.4%. The architectural coatings index for items such as paint rose 1.1% MoM and 27.5% YoY, the report said.

Other inputs declined MoM but still saw sharp gains from a year earlier. The index for asphalt paving mixtures and blocks decreased by 0.7% in October but was 20.7% higher than in October 2021. Gypsum building materials such as wallboard slipped 0.4% MoM but jumped 17.6% YoY. Insulation materials edged down 0.2% MoM but rose 13.5% YoY. Trucking costs slid 1.4% MoM but are up 11.8% YoY.

AGC urged federal officials to remove tariffs on key construction materials including steel and aluminum but asked the White House to review measures like Buy America that have inflated construction costs.

“Tariffs and regulations are making construction more expensive, which if left unchecked will undermine private sector demand for projects and limit the impacts of new infrastructure investments,” said Stephen Sandherr, AGC’s CEO.

By David Schollaert, David@SteelMarketUpdate.com

David Schollaert

David Schollaert is a senior analyst for Steel Market Update. David joined SMU after more than a decade in the metals and mining industry in a myriad of different roles. Much of his early experience and expertise were within the coverage and analysis of steel-making raw materials and served previously as senior editor of the CRU Prices Service. Most recently, however, before his return to market analysis, David held roles as a metals buyer and an operations manager for raw material suppliers. Based in CRU’s Pittsburgh office, David can be reached at david@steelmarketupdate.com or 724-720-1008.