According to an analysis by the Associated General Contractors of America of new Labor Department data, construction costs accelerated again in June, with steep increases for a wide range of building and road construction materials as tariffs against foreign goods come into effect. Association officials say that contractors will have to assume much of the costs as tariffs increase the costs of many key construction materials.

Rising Costs

"Contractors' costs for a wide range of materials and services have escalated dramatically in the past few months, putting a squeeze on profits and dimming the outlook for both public and private projects," said the association's chief economist, Ken Simonson, noting that the U.S. imposed steel and aluminum tariffs on imports from Canada, Mexico and the European Union on May 31 and has since announced over $200 billion in tariffs on Chinese goods. "Tariffs that took effect or have been announced since this price data was collected will push costs up even more."

High Price Index

The construction economist noted that the producer price index jumped by 20.0 percent for aluminum mill shapes, 17.4 percent for copper and brass mill shapes, and 12.3 percent for steel mill products between June 2017 and June 2018. Other construction inputs that rose sharply in price from May 2017 to May 2018 include diesel fuel, 52.8 percent; lumber and plywood, 18.3 percent; asphalt felts and coatings, 7.5 percent; ready-mixed concrete, 5.5 percent; and paving mixtures and blocks, 5.0 percent.

"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," Simonson added.

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—rose 9.6 percent over 12 months. The year-over-year increase was the steepest since October 2008, Simonson noted.

Added Pressure

Association officials say the new tariffs are putting new cost pressures on many construction firms. As many firms struggle to cope with rising materials prices they will have less capital available to invest in personnel – especially as labor costs continue to climb. And firms will have less money available to invest in technologies that can make the construction process more efficient.

"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."