Material, Fuel and Labor Costs on the Rise

Compiled by Katy Devlin
December 21, 2017
COMMERCIAL, RETAIL, FABRICATION : TRENDS & ANALYSIS

Sources: FRED Economic Data, Federal Reserve Bank of St. Louis; Bureau of Labor Statistics, Producer Price Index; U.S. Energy Information Administration.  

From labor to materials to fuel, costs are increasing in the construction and manufacturing industries. “We have seen quite a spike in the last year and a half on several key inputs—diesel fuel, steel, copper, aluminum. All have rebounded in the last year at double-digit rates,” says Ken Simonson, chief economist for the Associated General Contractors of America, who spoke during the 2018 Design & Construction Outlook webinar from ConstructConnect

In the U.S. glass industry, costs for flat glass have been a major concern, particularly as three float glass lines went offline unexpectedly in 2017. (See Supply & Demand for more information on float glass supply). According to the Bureau of Labor Statistics, the Producer Price Index for flat glass increased 16.7 percent from October 2012 to October 2017. While the PPI for flat glass remained fairly steady throughout the first half of 2017, the index saw a 2.2 percent increase from September to October. 

U.S. metal prices are also on the rise. Both the overall metal commodity PPI and the PPI for aluminum extrusions have increased in the past 18 months after experiencing steeper decline in late 2014 and early 2015. The PPI for metal and metal products fell 13.2 percent between September 2014 and January 2016. The index has rebounded since, increasing 11.8 percent through October 2017. The extruded aluminum PPI followed a similar trajectory, falling 18.3 percent from September 2014 to December 2015. The aluminum index has also rebounded, increasing 19.8 percent through the 2015 low to October 2017. 

The construction and manufacturing industries should prepare for increasing material costs in 2018 as well. Looking ahead, Simonson says he projects a 3-4 percent increase in the Producer Price Index for goods and services inputs. 

In addition to material cost increases, glass companies have also experienced upticks in fuel and energy costs. While prices for diesel, gasoline and natural gas experienced a notable decline in 2014 and 2015, prices have started to uptick. From November 2016 to November 2017, diesel prices increased 20.9 percent; regular gas, 17.3 percent; and natural gas, 12.9 percent. 

Finally, labor costs continue to steadily rise. From October 2012 to October 2017, average hourly wages increased 5.2 percent for construction workers and 5.6 percent for workers in manufacturing. Simonson says he expects labor costs to increase at a faster rate in the coming year, rising an estimated 3-4 percent. 

Click on images for larger view.

PPI Flat Glass Manufacturing

PPI Metal Products

Diesel, Gas and Natural Gas Prices

Average Hourly Earnings, Manufacturing and Construction