Associated Builders and Contractors, Inc. (ABC) released their latest report on the cost of commercial construction materials.
In January, material prices rose 1.1% compared to the previous month, and 4.9% compared to one year ago.
So what’s going on?
The rising cost of construction materials hasn’t hit all products equally. The materials which saw the biggest price increases were:
- Crude petroleum (up 11.6%)
- Iron and steel (up 2.7%%)
- Nonferrous wire and cable (up 1.7%)
- Plumbing fixtures and fittings (up 1.0%”)
ABC points to strong domestic and global economies, as well as a weak U.S. dollar, for the rise in material prices. That’s because a weak dollar means more aggressive increases in the price of imports.
The cost of material imports hasn’t escaped the notice of Washington, either. President Trump wants to impose a steep tariff on imports of Chinese steel in order to level the playing field for domestic producers.
But the president has yet to put forward a concrete plan (though he has until April to do so). And economists have warned that such a move would have far-reaching effects on the global economy rather than simply favoring the U.S. So it remains to be seen what, if any, effect federal action will have on construction material costs in 2018.
Higher Costs, Fewer Workers
According to ABC Chief Economist Anirban Basu, “The typical contractor should expect materials price increases in the range of 5 percent this year. Larger increases are possible.”
Contractors’ reactions to these higher costs will vary. Some builders will eat the extra cost of materials in order to keep their bid prices as low as possible. But this strategy has its drawbacks.
Lower profit margins mean builders won’t have as much capital to hire new workers or increase wages for current workers. And this will come at a time when construction firms are already having trouble finding enough laborers.
ABC’s Basu also acknowledged the effect that the tight construction labor market will have on the price of materials. “Larger increases in [prices] are possible, but industry demand for materials will be constrained by growing skills shortages. There is only so much output that America’s construction firms can deliver during any given period given workforce constraints.”
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