Construction costs hit highest levels in 7 years; metal tariffs could drive them up further

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Updated Jun 19, 2018

concrete barrier at construction site

Prices for construction materials saw their steepest increases in seven years in May, rising 8.8 percent when compared to May 2017, according to the Associated General Contractors of America.

Those increases do not reflect tariff increases on steel and aluminum imports from Canada, Mexico and the European Union, which took effect May 31. The AGC says the tariffs will likely drive prices even higher and could lead to project delays, as steel mills have witnessed a surge in demand.

“Prices jumped at double-digit annual rates for metals, lumber and plywood, and diesel fuel, while ready-mixed concrete, asphalt-paving and roofing materials also had unusually large increases,” said AGC Chief Economist Ken Simonson. “These increases far outstripped the 4.2 percent rise in the price index for new construction, implying that contractors are facing a severe squeeze on costs for both ongoing and new projects. Moreover, tariffs imposed on steel and aluminum since this data was collected in mid-May are likely to drive contractors’ costs still higher.”

On June 15, the Trump administration also slapped $50 billion worth of tariffs on China. The first round of tariffs is scheduled to begin July 6. The list of goods being targeted for tariffs include construction machinery and agricultural equipment. China immediately announced it would retaliate with tariffs on agricultural products. Europe, Canada and Mexico have also said they plan to retaliate against the steel and aluminum tariffs imposed on them. Some fear the beginnings of a trade war that could halt U.S. economic growth and send ripple effects to the construction industry.

“Considering the impact the mere threat of tariffs have had on materials prices and demand, prices are likely to increase further as the new trade restrictions come online,” said AGC CEO Stephen E. Sandherr. “Forcing contractors to pay more for materials and wait longer to receive them will make construction more costly and slower.”

 

Breakdown of the rising costs of construction

AGC reported the following producer price index (PPI) increases for specific construction materials from May 2017 to May 2018 from its analysis of recent data from the U.S. Labor Department:

  • Steel mill products up 10.5 percent
  • Aluminum mill shapes up 17.3 percent
  • Lumber and plywood up 13.9 percent
  • Copper and brass mill shapes up 13.8 percent

Other construction inputs that rose sharply, according to AGC:

  • Diesel fuel up 44.5 percent
  • Asphalt felts and coatings up 8.9 percent
  • Ready-mixed concrete up 6.5 percent
  • Paving mixtures and blocks up 5.2 percent.