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Proliferating Materials Price Increases and Supply Chain Disruptions Squeeze Contractors

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 analysis by the Associated General Contractors of America of government data released May 13. Meanwhile, nonresidential contractors struggled with delays in receiving materials and intensifying competition that limited their ability to pass on higher costs.

    

“[This] 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% 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%. 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% 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% from April 2020 to last month. The index for gypsum products such as wallboard climbed 12.1%, steel mill products climbed 67%, copper and brass mill shapes rose 49%, and aluminum mill shapes increased 20.5%. The index for plastic construction products rose 14.2% amid growing scarcity of items such as PVC pipe, vinyl siding and moisture barriers, and resins used in paints and adhesives.

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