Prices for Nonresidential Construction Materials and Services Climb Slightly in February
The price of materials and services used in nonresidential construction rose 0.5% in February, following an increase of 0.7% in January, according to an analysis by the Associated General Contractors of America of government data. Association officials noted that materials prices began increasing even before most of the threatened new tariffs were put in place.
“It’s a bad sign that construction costs have been rising significantly even before most of the Trump administration’s tariffs have taken effect,” says Ken Simonson, the association’s chief economist. “Now that many tariffs that hit construction materials are in effect, with more measures pending, construction costs are likely to rise much more.”
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The producer price index for inputs to new nonresidential construction—a weighted average of all materials and certain services used in new construction—increased for the second month in a row. Meanwhile, the index for new nonresidential building construction—a measure of what contractors report they would charge to put up a specific set of buildings—dipped by 0.1% in February, following an increase of 0.3% 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% in February. The index for copper and brass mill shapes rose by 1.8%, following a 1.3% gain in January. Aluminum mill shapes rose 1.0% in price for the month. In addition, the index for diesel fuel climbed 2.3% and the index for lumber and plywood rose 1.7%.
Prices used to calculate the indexes were collected around February 11, Simonson noted. Since then, the administration has imposed new tariffs of 25% on steel and aluminum imports, 25% on many goods from Mexico and Canada, and 10% on imports from China. These tariffs are in addition to a 10% 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.
What the experts say
“The irony is that the tariffs’ impacts on construction costs might just price some manufacturers out of their decision to expand or add plants in the U.S.,” says Jeffrey Shoaf, the chief executive officer of the Associated General Contractors of America. “That is why we urge the administration to quickly resolve the underlying disputes behind the tariffs."
