Materials Woes Slowing Projects; AGC Calls for Tariff Relief

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Construction inputs.
Source: Bureau of Labor Statistics, producer price indexes for new nonresidential building construciton and inputs to nonresidential construction costs, not seasonally adjusted.

The Associated General Contractors of America (AGC) has posted a Construction Inflation Alert to update contractors and clients on construction materials developments. The association said an “unprecedented” increase in the price of goods used in construction and disruptions in supply chains are causing harm to contractors and slowing projects.

AGC is asking the Biden administration to end a variety of tariffs and quotas on imported construction materials.

“Today’s producer price index report documents just some of challenges contractors are experiencing with fast-rising materials costs, lengthening or uncertain delivery times, and rationing of key inputs,” said Ken Simonson, the association’s chief economist, in a prepared statement. “These problems threaten to drive up the cost and completion time for many vital projects and potentially set back the recovery in construction employment.”

Prices for materials and services used in construction and contractors’ bid prices both declined at the beginning of the pandemic but have diverged in the past year, Simonson said. A government index that measures the selling price for goods used construction jumped 3.5 percent from February to March and 12.9 percent since March 2020. Both the monthly and yearly increases were the highest recorded in the 35-year history of the series, he said.

Meanwhile, the producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—increased only 0.5 percent last month and 1.7 percent over the past 12 months.

“These material cost increases—steep as they are—tell only part of the story,” Simonson said. “They are based on prices the government collected a month ago, and they fail to capture the notices contractors are receiving daily about longer lead times, shipments held to a fraction of previous orders, and other challenges.”

Association officials said some of the supply chain problems are being caused by the pandemic, which is leaving manufacturers and shippers shorthanded amid growing demand for a host of products. But they added that federal policies, particularly tariffs and quotas on key building materials like lumber and steel, are also contributing to price spikes, supply shortages, and delivery delays. They urged the administration to remove those import barriers and explore ways to help unclog shipping backups.

Source: AGC