Tariffs are already taking toll on construction costs says AGC

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The Associated General Contractors of America (AGC) say tariffs imposed by the United States government has already led to “dramatic increases” in the cost of construction materials.

The American contractors’ association is now warning costs will continue to climb as trade restriction take effect.

On May 31, the United States Secretary of Commerce, announced the government will impose tariffs of 25 per cent on steel and 10 per cent on aluminum for materials imported from Canada, Mexico and the European Union.

An analysis by the Associated General Contractors of America of new Labor Department data for the month of May, found steep increases already occurred on a variety of materials.

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“Prices jumped at double-digit annual rates for metals, lumber and plywood, and diesel fuel, while ready-mixed concrete, asphalt paving and roofing materials also had unusually large increases,” said Ken Simonson, AGC’s chief economist. “The cost of all goods used in construction rose 8.8 per cent from May 2017 to May 2018, the steepest annual increase in nearly seven years.”

From May 2017 to May 2018, the producer price index jumped by 17.3 per cent for aluminum mill shapes, 13.9 per cent for lumber and plywood, 13.8 per cent for copper and brass mill shapes and 10.5 per cent for steel mill products. Other construction inputs that rose sharply include diesel fuel, 44.5 per cent; asphalt felts and coatings, 8.9 per cent; ready-mixed concrete, 6.5 per cent; and paving mixtures and blocks, 5.2 per cent.

The impact from the tariffs is not reflected in the most recent data.

“These increases far outstripped the 4.2 per cent rise in the price index for new construction, implying that contractors are facing a severe squeeze on costs for both ongoing and new projects,” Simonson said. “Moreover, tariffs imposed on steel and aluminum since this data was collected in mid-May are likely to drive contractors’ costs still higher.”

The producer price index for inputs to construction industries, goods—a measure of all materials used in construction projects including items consumed by contractors, such as concrete products—rose 2.2 per cent in May alone and 8.8 per cent over 12 months. The year-over-year increase was the steepest since July 2011.

Even before tariffs took effect, construction officials say the tariffs have triggered a surge of orders that mills say exceed their current capacity, a situation that threatens to produce construction delays, budget problems and possibly cancellations for future construction projects.

“Considering the impact the mere threat of tariffs have had on materials prices and demand, prices are likely to increase further as the new trade restrictions come online,” said Stephen E. Sandherr, the AGC’s chief executive officer. “Forcing contractors to pay more for materials and wait longer to receive them will make construction more costly and slower.”

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