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Rising Materials Prices And Supply Chain Disruptions Are Hurting Many Construction Firms Already Struggling To Cope With Pandemic Impacts

March 12, 2021

New Producer Price Index Data Confirms Association Survey Showing Most Construction Firms are Being Harmed by Skyrocketing Costs for Products Like Lumber while Shipping Problems Impact Project Schedules

Another round of steep price increases and supply-chain disruptions are wreaking hardships on contractors, driving up construction costs and slowing projects, according to an analysis by the Associated General Contractors of America of government data released today. The data comes a day after the association released a new survey showing materials delays and price increases are affecting most contractors.  Association officials urged the Biden administration to end a range of trade tariffs in place, including for Canadian lumber, that are contributing to the price increases, and to help uncork supply-chain bottlenecks.

“Both today’s producer price index report and our survey results show escalating materials costs and lengthening delivery times are making life difficult for contractors and their customers, including hospitals, schools, and other facilities needed to get the economy back on track,” said Ken Simonson, the association’s chief economist. “Project owners and budget officials should anticipate that projects will cost more and have longer—perhaps uncertain—completion times, owing to these circumstances that contractors cannot control.”

Prices for materials and services used in construction and contractors’ bid prices both declined at the beginning of the pandemic but have diverged sharply since last April, Simonson said. A government index that measures the selling price for materials and services used in new nonresidential construction jumped 1.9 percent from January to February and 12.8 percent since April 2020. 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—increased only 0.3 percent last month and 0.5 percent in the 10 months since April.

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