Construction Bid Prices Accelerate, Contractors’ Costs Rise Faster

| November 12, 2018

National – The price of new nonresidential buildings accelerated in October as contractors attempted to recoup fast-rising costs for materials and labor, according to an analysis by the Associated General Contractors of America of new Labor Department data.

Association officials said that trade tensions and labor shortages are contributing to higher construction prices, making it harder for public officials to improve aging and over-burdened infrastructure.

The producer price index for inputs to construction industries—a weighted average of all goods and services used in construction—climbed 0.6 percent in October, following a 0.2 percent rise in September, bringing the 12-month increase to 6.6 percent. In contrast, an index that measures what contractors say they would charge to construct five types of nonresidential buildings had a smaller 12-month gain—5.0 percent—despite having jumped 2.0 percent in October. The larger increase in contractors’ costs than in their bid prices implies a squeeze on profit margins and sets up the prospect of further bid-price increases.

Metals and petroleum-based products registered the largest increases among construction inputs. From October 2017 to October 2018, there were producer price index increases of 27.0 percent for diesel fuel, 18.2 percent for steel mill products, 11.6 percent for asphalt paving mixtures and blocks and 8.2 percent for aluminum mill shapes.

In addition, labor costs are accelerating. The Labor Department reported that average hourly earnings for all employees in construction rose 3.9 percent in the 12 months through October.

 

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Category: All, National/International