Contractors challenged to pace bids with labor, material cost increases

Prices for goods and services used in construction climbed 6.2 percent over the past year and are intensifying a cost squeeze on contractors coping with widespread labor shortages, according to an Associated General Contractors of America analysis of new Labor Department data, including Producer Price Index (PPI) figures tracking an August 2017–2018 trajectory.

“Price changes for construction materials in August [2018] were mixed, but contractors are likely to be hit with additional cost increases as new tariffs take hold, as well as significant labor cost escalation,” says AGC Chief Economist Ken Simonson. “Prices rose over the past year at nearly double the rate that contractors have raised their bid prices to put up new buildings.”

A diverse range of products outside of cement and concrete contributed to the year-over-year cost measure, notes Simonson, who points especially to Labor Department figures for diesel fuel, up 33.9 percent; steel mill products, up 18.6 percent; aluminum mill shapes, up 14.0 percent; asphalt paving mixtures and block, up 9.2 percent; and, gypsum products, up 8.2 percent. Among services used in construction, the price index for truck transportation of freight climbed 7.2 percent. Over same 12-month window, the PPI shows portland cement and concrete products prices up 1.9 percent and 3.6 percent, respectively. The latter figure factors increases for concrete block & brick (2.4 percent); pipe (1.5 percent); ready mixed (3.7 percent); precast (3.8 percent); and, prestressed (4.8 percent).

The PPI for inputs to construction industries—a weighted average of all goods and services used in building and nonbuilding segments—declined 0.8 percent from July to August but jumped 6.2 percent since August 2017. In contrast, an index that measures what contractors say they would charge to erect five types of nonresidential buildings rose 3.4 percent over the year, indicating that respondents were absorbing more of the costs than they were passing on to owners.

“Contractors are having to pay more for many construction materials and workers, yet appear to have limited ability to pass those costs along to their clients,” observes AGC CEO Stephen Sandherr. “The President and Congress can help by removing costly tariffs on key construction materials and boosting investments in career and technical education programs.”