Construction material costs outpace contractors’ pricing; AGC warns against policy squeeze

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"Buy America" and softwood trade disputes could result in even higher costs for construction materials, says the Associated General Contractors of America

Double-digit price increases for key construction materials pushed up construction costs in March, while the prices charged by contractors remained moderate, according to a new analysis of federal producer price data released on April 19 by the Associated General Contractors (AGC) of America.  

Association officials urged policy makers to avoid adopting restrictions on international trade that would add to materials costs and potentially drive up the price of infrastructure, buildings and new homes and apartments.

“Prices have jumped in recent months for diesel fuel, steel, copper, wallboard and lumber—materials essential for houses, nonresidential buildings and infrastructure projects,” the association’s chief economist Ken Simonson said in a news release.

“Contractors generally cannot pass these costs along on projects that have broken ground, and the data show they have not been able to price new buildings at a level that reflects their rising materials, services, and labor costs.”

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From March 2016 to March 2017, there was a 4.4 percent rise in the producer price index for goods used in construction—the government’s broadest measure of the cost of goods and consumable items like fuel that go into all types of construction, ranging from highways and other infrastructure to schools, private buildings, apartments and houses. In addition, the price index for services purchased by contractors rose 2.3 percent and a separate measure of labor costs, average hourly earnings in construction, climbed 2.4 percent. Over the same period, the price index for new nonresidential buildings—a measure of what contractors say they would charge to put up specific types of structures—increased only 1.4 percent.

Among the most widely used materials in construction, there were price increases over the past 12 months totaling 19 percent for steel mill products, 17 percent for copper and brass mill shapes, 8.8 percent for aluminum mill shapes, 7.6 percent for gypsum products such as wallboard and plaster, and 7.3 percent for lumber and plywood. In addition, the price index for diesel fuel, which contractors use directly and also pay for through surcharges on the thousands of deliveries to construction sites, soared 35 percent.

Association officials cited three types of proposals that threaten to drive construction costs even higher: an expansion of restrictive “Buy America” provisions for construction materials to a wider variety of federally funded infrastructure projects; punitive tariffs on imported steel used in many types of buildings; and limitations on Canadian lumber that is commonly used in residential projects.

“If the President and Congress are serious about rebuilding the nation’s aging infrastructure, it is vital to avoid artificially pushing up the cost of materials that go into these projects,” said Stephen E. Sandherr, the association’s chief executive officer. “The best way to rebuild the domestic market for manufacturing key construction materials is to put in place long-term infrastructure funding mechanisms that will reassure manufacturers that there will be steady demand for their products.”

View AGC’s producer price index tables and explanation.

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