AGC warns of further construction cost hikes on Trump tariffs as May prices hit new high

ConDig (14-Jun-18). Construction costs are poised to rise further as tariffs on steel and aluminum are set to take effect, with the cost of goods used in construction surging in May at the fastest year-over-year rate since 2011, according to the Associated General Contractors of America (AGC).

The producer price index for inputs to construction industries, goods—a measure of all materials used in construction projects including items consumed by contractors, such as diesel fuel— rocketed 8.8% from May last year to May 2018, the steepest annual increase in nearly seven years. It also jumped 2.2% from April, according to an analysis by the association of Labor Department data.

The rise in construction costs over the past couple months now poses a real threat to the continued growth of the construction industry, AGC officials warned.

“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,” said the association’s chief economist, Ken Simonson.

“Moreover, tariffs imposed on steel and aluminum since this data was collected in mid-May are likely to drive contractors’ costs still higher.”

The comments follow a decision by President Trump to slap a 25% tariff on imported steel and a 10% duty on foreign aluminum from Canada, Mexico and the European Union on May 31.

The impact from these tariffs is not reflected yet in the most recent data, AGC noted.

Even before they have taken effect, construction officials said the tariffs have triggered a surge of orders that mills say exceeds their current capacity, a situation that threatens to produce construction delays, budget problems and possibly cancellations for future construction projects.

“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 Sandherr.

”Forcing contractors to pay more for materials and wait longer to receive them will make construction more costly and slower.”

From May last year to May 2018, the producer price index jumped by 17.3% for aluminum mill shapes, 13.9% for lumber and plywood, 13.8% for copper and brass mill shapes and 10.5% for steel mill products. Other construction inputs that rose sharply in price include diesel fuel, 44.5%; asphalt felts and coatings, 8.9%; ready-mixed concrete, 6.5%; and paving mixtures and blocks, 5.2%.

AGC warned in March that the roll out of US import tariffs on steel and aluminum could result in the loss of 30,000 jobs in the construction industry as contractors will be forced to absorb increased costs.