Construction Material Prices Show Largest Monthly Increase in a Decade

by: Smith and Howard

August 20, 2018

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Construction Survey Respondents Report Material Prices as a Chief Concern 

Construction material prices, which have been on a steady climb in 2018, reached a dubious milestone in May, with the largest monthly increase in construction material costs in 10 years. Material costs continued to increase in June by another 0.8%. According the Bureau of Labor Statistics, costs in June were 9.6%, higher than the same period one year ago.

Contributing factors include increasing inflationary pressure resulting from rising interest rates, and escalating tariffs. The Fed raised interest rates in June 2018 and signaled two more possible rate hikes in the remainder of the year. This, combined with potential retaliatory measures by some trading partners, could pinch contractors further in the months to come.

According to officials from the Association of General Contractors (AGC), the threat of new tariffs has already led to dramatic increases in many construction materials. “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 the association’s chief economist, Ken Simonson.

By March 2018, the price of nonresidential construction materials had already increased 5.6% from the previous March. That’s on top of an increase of 4.8% between 2016 and 2017. Construction-related materials that experienced a price increase year over year in May included aluminum mill shapes (17.3%), lumber and plywood (13.9%), copper and brass mill shapes (13.8%), steel mill products (10.5%), diesel fuel (44.5%), asphalt felts and coatings (8.9%), ready-mixed concrete (6.5%), and paving mixtures and blocks (5.2%).

Smith and Howard recently released the results of the firm’s second annual survey of Georgia’s real estate and construction industries. Survey respondents echoed the growing concern over material costs, ranking the increase in material costs as the second-leading threat to the construction industry, trailing only skilled labor. In fact, the number of respondents citing it as one of the top threats increased from 2.2% in the 2017 survey to 12.5% in 2018. Additionally, 2018 respondents listed the cost of construction as one of the greatest barriers to development, another indication that material costs are on their minds.

Looking ahead, Smith and Howard will continue to monitor material costs and the effect of interest rates and tariffs on the construction industry. For access to our full survey results, download the free 2018 report, Georgia on the Rise: Trends in Real Estate and Construction.

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