Construction costs are steadily rising since the beginning of this year and experts attribute it to the new tariffs. As data reveals, the cost of construction material, including a broad range of building materials, surged in April at the quickest year to year rate since 2011.
Tariffs that are still in the pipeline, may increases prices even higher, making the financial restrictions of construction projects tighter. Construction companies are not able to pass on these higher, additional costs to the customer and they will more than likely end up finding their finances squeezed by higher rates of material.
Gross domestic product (GDP) growth in the American economy, in the first quarter of 2018, was a modest 2%. However, as per the forecasts calculated by names like Goldman Sachs, CNBC, and the Atlanta Fed, Q2’s GDP growth may even cross 4%. This buoyancy can be partially attributed to a pickup in manufacturing activity.
Experts have raised a caution flag on this dynamism in economy. Lack of any substantial growth in economy also led to an assurance about the absence of inflation. However, the growth means that the inflation is going to experience a wind shift.
The construction industry is a bit apprehensive of the negative effects of this surge in costing, due to inflation. A Tariff set on Canadian softwood lumber and re-set tariffs on Canadian, Mexican and European Union steel and aluminum have already affected the costs, and construction companies are sure not happy with it. They are particularly concerned about rise in the cost with the Big Five – copper, steel, lumber, cement, and gasoline.
Here are the year-over-year increases in the index values for these commodities – copper, +7.8%; steel, +15.3%; lumber, +15.4%; cement, +2.1%, and gasoline, +37.9%.
Increase in gasoline’s prices is the outcome of elation in the global price of oil. Fervor in the cost of lumber is demand-driven. Millions of residential and commercial units across America are breaking ground and this has pushed up the cost of lumber.
As for steel, though it is in huge supply worldwide, the price in the US has been on the rise. Cement has been on a slow and steady incline.
As the data shows, construction materials are showing a spike in price, which is only to be exacerbated by tariffs. Smaller builders, who are not that cash-rich and ready, are sure to face troubled time if prices continue to increase. This situation has the potential to undermine advantages of tax and regulatory reforms.
To deal with the situation, construction companies have started to hike the prices, yet they are not able to recover their costs. This may have two unwanted consequences – either these companies will have to settle on reduced profit margins, or they’ll have to cut back on their projects.
Constructors will have to find ways to use their limited revenues, thoughtfully, to tide over the rising cost factor, and yet invest in personnel and equipment. However, as they say, where there is a will, there is a way.