The producer price index for materials and services used in nonresidential construction rose 0.2 percent in August and 2.5 percent from August 2024, driven by extreme increases in steel and aluminum prices, according to an analysis by the Associated General Contractors of America of government data released today. Association officials noted a survey the association and NCCER recently released found rising costs were one of the key reasons for delayed, canceled, or scaled-back projects.  “The huge increases in steel and aluminum tariffs appears to have enabled domestic producers to push up their selling prices,” said Ken Simonson, the association’s chief economist. He noted that the AGC-NCCER survey found that 43 percent of contractors reported at least one project in the past six months had been canceled, postponed or scaled back because of higher costs. “These price increases are prompting some owners to rethink planned construction projects.”  The association noted that tariffs on steel and aluminum were raised to 50 percent on June 4, following an earlier increase to 25 percent on March 12. A 50 percent tariff on copper products and components took effect on August 1. In addition, broad tariffs covering most imports from nearly all major suppliers of construction materials were activated in early August, making additional cost increases likely in the months ahead.  Three major construction inputs contributed to the acceleration in year-over-year costs. The producer price index for aluminum mill shapes jumped 5.5 percent last month and 22.8 percent from August 2024. The index for steel mill products rose 1.5 percent in August and climbed by 13.1 percent over 12 months. The index for lumber and plywood increased 0.5 percent for the month and 4.8 percent year-over-year.  The recent AGC-NCCER survey found many contractors are already adjusting to the price increases. Two in five firms reported raising their own prices in response to tariffs, and many accelerated purchases to get ahead of further hikes. Another 16 percent said they had absorbed the higher costs themselves or worked with suppliers to share the burden. Nearly 40 percent of contractors reported they expect materials costs to climb further in the months ahead.  Association officials noted that the Trump administration has made progress in resolving trade disputes with several key nations. But they urged the administration to resolve outstanding disputes with China, Canada, Mexico and several other trading partners to allow for lower tariff rates and provide greater certainty on materials prices.  “There is a limit to how many price increases the market can absorb before owners put projects on hold,” said Jeffrey D. Shoaf, the chief executive officer of the Associated General Contractors of America. “The more the administration does to resolve trade disputes, provide more certainty and lower punitive tariff levels, the more demand for construction should rebound.”   

Spending on projects underway in July inched down 0.1 percent from June as declines in private nonresidential and multifamily construction offset pickups in public outlays and single-family homebuilding, according to an analysis of new government data that the Associated General Contractors of America released today. Association officials noted the results are consistent with a survey the association released last week that found many owners have canceled, deferred, or scaled back projects due to tariffs and labor shortages.   “Our survey of construction firms found 16 percent of contractors reported projects had been canceled, postponed, or scaled back as owners’ demand or need changed due to tariffs while 45 percent of firms report project delays because of labor shortages,” said Ken Simonson, the association’s chief economist. “And 26 percent of firms said projects had been affected by changes in owners’ demand or need due to other policy changes such as federal funding, taxes, and regulations.”  Spending totaled $2.14 trillion at a seasonally adjusted annual rate in July. The total was nearly identical to the May rate, following an increase of 0.1 percent in June rate and a similar decline in July.  The construction spending total was dragged down by decreases in private nonresidential and multifamily projects, which slipped 0.5 percent and 0.4 percent, respectively, from June to July. There were declines in the four largest private nonresidential categories. Manufacturing and private power construction each slumped by 0.7 percent. Commercial construction slid 0.9 percent and private office construction dipped by 0.2 percent.  Public construction outlays and single-family homebuilding rose 0.3 percent and 0.1 percent, respectively, from June to July. Nevertheless, the two largest public segments, highway and street construction and educational spending, each edged down by 0.1 percent.  Association officials said the new spending data and survey results underscore the need for greater policy certainty. They urged the Trump administration to quickly resolve trade disputes to end the threat of retaliatory tariffs. They continued to call for short and long-term workforce development measures, including new pathways for people to enter the country and work in construction and more investments in construction training and education programs.  “It is difficult for developers to launch new construction projects when they don’t know how much the project will cost or how long it will take to finish,” said Jeffrey D. Shoaf, the association’s chief executive officer. “Providing greater certainty on tariff rates and taking steps to address severe construction labor shortages will go a long way in stimulating new demand for construction.”