Officials with the Associated General Contractors of America note that Rising Construction Costs will Make it Harder for Firms to Build the Kind of Manufacturing Base the Tariffs are Intended to Create
The price of materials and services used in nonresidential construction rose 0.5 percent in February, following an increase of 0.7 percent in January, according to an analysis by the Associated General Contractors of America of government data released today. Association officials noted that materials prices began increasing even before most of the threatened new tariffs were put in place.
鈥淚t鈥檚 a bad sign that construction costs have been rising significantly even before most of the Trump administration鈥檚 tariffs have taken effect,鈥 said Ken Simonson, the association鈥檚 chief economist. 鈥淣ow that many tariffs that hit construction materials are in effect, with more measures pending, construction costs are likely to rise much more.鈥
The producer price index for inputs to new nonresidential construction鈥攁 weighted average of all materials and certain services used in new construction鈥攊ncreased for the second month in a row. Meanwhile, the index for new nonresidential building construction鈥攁 measure of what contractors report they would charge to put up a specific set of buildings鈥攄ipped by 0.1 percent in February, following an increase of 0.3 percent in January. The fact that input costs are outstripping bid prices implies that contractors have not been able to pass along the cost increases enough to maintain profit margins, Simonson said.
A variety of materials, especially metals, contributed to the increase in the price index for inputs. The index for steel mill products jumped 2.7 percent in February. The index for copper and brass mill shapes rose by 1.8 percent, following a 1.3 percent gain in January. Aluminum mill shapes rose 1.0 percent in price for the month. In addition, the index for diesel fuel climbed 2.3 percent and the index for lumber and plywood rose 1.7 percent.
Prices used to calculate the indexes were collected around February 11, Simonson noted. Since then, the administration has imposed new tariffs of 25 percent on steel and aluminum imports, 25 percent on many goods from Mexico and Canada, and 10 percent on imports from China. These tariffs are in addition to a 10 percent tariff on China that took effect on February 4 and numerous tariffs already in effect. In addition, the administration has threatened to impose additional tariffs in early April and potentially steep fees on ships delivering cargo to U.S. ports.
Association officials noted that materials prices are likely to continue increasing, especially as a variety of threatened tariffs go into effect. They said this would make the cost of construction more expensive forcing some manufacturers to rethink plans to establish or expand facilities within the United States, undermining the very intent of many of the proposed tariffs.
鈥淭he irony is that the tariffs鈥 impacts on construction costs might just price some manufacturers out of their decision to expand or add plants in the U.S.,鈥 said Jeffrey Shoaf, the chief executive officer of the Associated General Contractors of America. 鈥淭hat is why we urge the administration to quickly resolve the underlying disputes behind the tariffs.
View producer price index data.