AGC: ‘Buy American’ Bad for Contractors Facing Soaring Materials Costs

March prices soar for diesel fuel, steel, copper, wallboard and lumber while contractors struggle to make modest price increases for nonresidential construction

Associated General Contractors of America

Double-digit March price increases for key construction materials squeezed margins as the price increases contractors can charge remained moderate, according the Associated General Contractors’ analysis of federal producer price data. Association officials urged policy makers to avoid adopting restrictions on international trade that would add to materials costs and potentially drive up the price of infrastructure, buildings, new homes and apartments.

“Prices have jumped in recent months for diesel fuel, steel, copper, wallboard and lumber—materials essential for houses, nonresidential buildings and infrastructure projects,” said Ken Simonson, the association’s chief economist. “Contractors generally cannot pass these costs along on projects that have broken ground, and the data show they have not been able to price new buildings at a level that reflects their rising materials, services, and labor costs.”

From March 2016 to March 2017, there was a 4.4% rise in the producer price index for goods used in construction—the government’s broadest measure of the cost of goods and consumable items like fuel that go into all types of construction, ranging from highways and other infrastructure to schools, private buildings, apartments and houses. In addition, the price index for services purchased by contractors rose 2.3% and a separate measure of labor costs, average hourly earnings in construction, climbed 2.4%. Over the same period, the price index for new nonresidential buildings—a measure of what contractors say they would charge to put up specific types of structures—increased only 1.4%.

Among the most widely used materials in construction, there were price increases over the past 12 months totaling:

  • 19% for steel mill products
  • 17% for copper and brass mill shapes
  • 8.8% for aluminum mill shapes
  • 7.6% for gypsum products such as wallboard and plaster
  • 7.3% for lumber and plywood

The price index for diesel fuel, which contractors use directly and also pay for through surcharges on the thousands of deliveries to construction sites, soared 35%.

Association officials cited three types of proposals that threaten to drive construction costs even higher: an expansion of restrictive “Buy America” provisions for construction materials to a wider variety of federally funded infrastructure projects; punitive tariffs on imported steel used in many types of buildings; and limitations on Canadian lumber that is commonly used in residential projects.

“If the President and Congress are serious about rebuilding the nation’s aging infrastructure, it is vital to avoid artificially pushing up the cost of materials that go into these projects,” said Stephen E. Sandherr, the association’s chief executive officer. “The best way to rebuild the domestic market for manufacturing key construction materials is to put in place long-term infrastructure funding mechanisms that will reassure manufacturers that there will be steady demand for their products.”

View AGC’s producer price index tables and explanation.