Steel Markets

Construction Costs Hit Recent High Due to Tariffs

July 12, 2018

Constructions costs are escalating due to tariffs on a wide range of building and road construction materials, said the Associated General Contractors of America in a new analysis of Labor Department data.

The producer price index rose sharply on construction inputs in June. Aluminum mill shapes jumped 20 percent year-over-year, copper and brass mill shapes 17.4 percent, and steel mill products 12.3 percent. Diesel fuel was up 52.8 percent. June’s increases follow sharp price spikes on other construction inputs in May.

“Many of these increases far outstripped the 4.3 percent rise in the price index for new construction – what contractors are charging to build projects, implying that contractors’ profit margins are shrinking as they absorb some of the increased costs,” said the association’s chief economist Ken Simonson.

Section 232 tariffs on steel and aluminum from U.S. allies Canada, Mexico and the EU, along with the recently announced $200 billion in tariffs on Chinese goods, took place after price data was collected for the index and will push costs up even more, said Simonson.

The producer price index for inputs to construction industries—a measure of all materials used in construction projects including items consumed by contractors, such as diesel fuel—rose 9.6 percent over 12 months, according to Labor data. The year-over-year increase was the steepest since October 2008, Simonson noted.

As cost pressures increase on construction firms, less capital is available to invest in personnel and technology, said AGC officials.

“The broader impact of the new tariffs and the trade fights that are now emerging is a significant and costly loss in productivity for many construction firms,” said Stephen E. Sandherr, the association’s chief executive officer. “Making real, sustained and long-term investments in our aging and over-burdened infrastructure will do more to boost domestic production of strategic resources without exacting lasting damage on construction firms and the high-wage jobs they offer.”

The producer price indexes for construction can be viewed at AGC.org.