The Building Tradesman Newspaper

Friday, March 03, 2017

Price hikes hammering construction industry

By The Building Tradesman

The cost of materials and services used in the nation's construction industry rose markedly faster than the price of completed buildings, according to a new analysis of federal producer price data released Feb. 14 by the Associated General Contractors of America.

From January 2016 to January 2017, there was a 3.1 percent rise in the producer price index for inputs to construction industries—the government's broadest measure of the cost of goods, energy and services that go into all types of construction, ranging from highways and other infrastructure to schools, private buildings, apartments and houses, the AGC said.

Another government report showed that average hourly earnings for all workers in construction climbed 3.2 percent over the same period. Meanwhile, the price index for new nonresidential buildings – what contractors charge for their work – increased just 1.4 percent.

"Steep price hikes have hit a wide range of key materials used in construction in the past few months, and contractors have received numerous letters from vendors announcing large additional increases in the next month or two," said Ken Simonson, the association's chief economist. "For the most part, contractors cannot pass these costs along on projects already underway, and the data show they are not yet able to price new buildings at a level that reflects their rising materials, services, and labor costs."

The AGC said that potential restrictions on the use of imported construction materials threaten to drive up the price of infrastructure, buildings and new homes and apartments.

Among the major contributors to the rise in construction materials costs over the past year were increases in the cost of copper and brass mill shapes (19.9 percent), steel mill products (11.4 percent) and lumber and plywood (3.7 percent). In addition, diesel fuel, which contractors use directly and also pay for through surcharges on the thousands of deliveries to construction sites, jumped by 34.8 percent.

AGC officials cited three types of proposals that threaten to drive construction costs even higher: an expansion of "Buy America" provisions for construction materials to a wider variety of federally funded infrastructure projects; 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, the last thing they should do is put in place measures that will needlessly increase the cost of building 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."