Contractors Struggle with High Materials and Labor Costs

December 3, 2018

The cost of many products commonly used in construction, including fuel, metal, and asphalt, have increased by double digits over the past year, even as the prices contractors are charging for building projects have grown by low single digits, and labor costs remain high, according to a report published on October 10 by the Associated General Contractors of America. 

 

Based on an analysis of new Labor Department data, the report indicated that the producer price index for inputs to construction industries, which is a weighted average of all goods and services used in construction, increased 0.2% from August to September 2018, and jumped 6.2% over the 12-month period ending September 2018. The report also showed that the index for goods except services increased at an even faster pace over the year, by 7.4%.

 

By contrast, the report added, an index measuring what contractors say they would charge to  construct five types of nonresidential buildings rose just 3.5% over the year, which suggests that contractors were absorbing more of the costs than they were passing on to owners. The study also cited the results of a survey the Association released in August, which found that 80% of contractors are having difficulties filling hourly craft worker positions, and 62% are paying higher salaries to attract and retain workers.

 

Researchers noted that certain products in particular contributed substantially to the large year-over-year cost increases. The findings indicated that from September 2017 to September 2018, there were producer price index increases of 29.3% for diesel fuel, 22.1% for steel pipe and tube, 11.7% for fabricated structural metal, 11.2% for asphalt paving mixtures and blocks, and 10.7% for aluminum mill shapes. In addition, researchers pointed out that materials prices are on track to rise further because of new tariffs imposed on goods important to the construction industry.

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