Boom or Bust

What do market growth and increasing materials prices mean for the construction industry?

You may have noticed that we’ve talked a lot about American tariffs on steel and aluminum imports in the last few months. Until recently, this talk was mostly just prediction and speculation, but no longer. US tariffs on steel and aluminum imports from Canada, Mexico, and the European Union took effect on May 31, and the US Department of Labor has released new figures on the cost of construction materials for June, the Associated General Contractors of America (AGC) reports.

The overall increase for all materials used or consumed by contractors, including diesel fuel, was 9.6% over the last 12 months—the steepest year-over-year increase since October 2008. In June, the producer price of aluminum increased 20%, copper 17.4%, and steel 12.3%. But the price increases aren’t limited to aluminum and steel. According to the AGC, “other construction inputs that rose sharply in price from May 2017 to May 2018 include diesel fuel, 52.8%; lumber and plywood, 18.3%; asphalt felts and coatings, 7.5%; ready-mixed concrete, 5.5%; and paving mixtures and blocks, 5.0%.”

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The numbers suggest that construction companies are absorbing some of the costs themselves and shrinking their profit margins since the price index for new construction increased only 4.3%. While that may be a relief for customers, it’s concerning for contractors and construction firms. As previously discussed on the blog, the construction industry is experiencing a labor shortage, and labor costs have continued to climb. Lower profits mean less money to invest in new technologies to improve efficiency and certainly won’t help attract more workers. And these latest numbers still don’t reflect the latest tariffs; US tariffs on Chinese steel, aluminum, and other imports didn’t come into effect until July 6, reports the BBC, so there may be more cost increases ahead.

And yet, in spite of increasing costs and labor shortages, industry firms are optimistic, at least in the short term. Engineering News-Record’s Construction Industry Confidence survey indicates that executives have positive outlooks about the industry in the next 12 to 18 months (nearly 30% predicted the market would still be growing in mid-2019) but are more cautious about the long term (just 16% believe the growth will continue for the next three years). That short-term confidence isn’t unfounded either—the market is currently in its 10th year of growth.

But with both market growth and tariffs to contend with, it’s hard to say what all this will mean for industry as a whole, especially in the long term or for smaller companies that are more likely to feel the pressure of price increases and higher labor costs and less likely to have large profit margins to cut into.

How have the tariffs impacted your business? Are you feeling the boom of growth or the squeeze of materials prices? Let us know in the comments. GX_bug_web

Comments
  • Wendy B.

    In business there are always ups and downs. Running a steel product company has been challenging lately with the daily fluctuations in the price of steel, but it has also been a time for growth for Extreme Plates LLC. One challenge is to employ customers to purchase today because there is a sure chance that the price of a new steel product will increase tomorrow. Knowing how the cost of steel is affecting everyone across the board, and that we have remained committed to being competitive, customers have been calling with the intent to buy.

    Reply

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