Price increases, supply chain disruptions squeeze contractors and threaten economic recovery: AGC

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The cost of goods and services used in construction accelerated further in April as more items logged double-digit increases over the past year, according to an by the Associated General Contractors of America of government data released on May 13.

Meanwhile, nonresidential contractors struggled with delays in receiving materials and intensifying competition that limited their ability to pass on higher costs. Association officials urged the Biden administration to quickly roll back tariffs and quotas on imported construction materials that are adding to costs and availability problems.

“Today’s producer price index report—bad though it is—actually understates the severity of the problems contractors are experiencing,” said Ken Simonson, the association’s chief economist. “Many items have posted even steeper price increases since the data for this report were collected in mid-April, while lead times for producing goods and delivery times to distributors and worksites have grown ever longer and less certain.”

Prices for materials used in construction jumped 19.7 percent from April 2020 to last month. That was by far the largest increase in the 35-year history of the series, Simonson said. A series that includes services as well as goods purchased by contractors increased nearly as much, 19.1 percent. Meanwhile, the producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—rose only 2.3 percent over the past 12 months, as competition for a shrinking pool of new projects forced contractors to absorb most of the increases.

Items with especially steep price increases over the past year ranged from lumber to metals to plastics. The producer price index for lumber and plywood soared 85.7 percent from April 2020 to last month. The index for steel mill products climbed 67 percent, while the index for copper and brass mill shapes rose 49 percent and the index for aluminum mill shapes increased 20.5 percent. The index for plastic construction products rose 14.2 percent amid growing scarcity of items such as PVC pipe, vinyl siding and moisture barriers, and resins used in paints and adhesives. The index for gypsum products such as wallboard climbed 12.1 percent.

Association officials said some of the supply chain problems have resulted from the pandemic or one-time events like the freeze in Texas last February that damaged plants producing inputs for construction plastics. But they added that federal policies, particularly tariffs and quotas on key building materials like lumber, steel, and aluminum have exacerbated the price spikes, supply shortages, and delivery delays. They urged the administration to end those import obstacles and explore ways to help uncork supply-chain bottlenecks.

“The Biden administration must address these unprecedented lumber and steel costs and broader supply-chain woes or risk undermining the economic recovery,” said Stephen E. Sandherr, the association’s chief executive officer. “Without tariff relief and other measures, vital construction projects will fall behind schedule or be canceled.”

View producer price index . View of gap between input costs and bid prices. View AGC’s Construction Inflation .

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