Study Finds Material, Labor Costs Squeezing Construction Industry, Top Buyers Of Promotional Products
The construction industry is one of the top buyers of promotional products; PPAI’s Sales Volume Study, released earlier this year, found that it accounted for 6.1 percent of 2017’s $23.3 billion in promotional product sales. Analysis from the Associated General Contractors of America (AGC), however, suggests some segments of the industry may be squeezed by rising fuel, materials and labor costs.
Drawing from Labor Department data, AGC reports that the cost of many products used in construction climbed 7.4 percent over the past year due to double digit increases in commonly-used construction materials. Ken Simonson, the association’s chief economist, says “The new construction materials cost data likely under-reports actual price increases, since federal officials collected most of their data in the first half of the month, before new tariffs affecting many construction materials started. Contractors are paying more for the materials they use and workers they employ but aren’t able to pass most of those new costs on to their clients.”
The Labor Department’s producer price index with inputs to construction industries, a weighted average of all goods and services used in construction, increased 0.2 percent from August to September and is up a significant 6.2 percent since September 2017, while the index for goods except services rose at a faster pace of 7.4 percent. In contrast, an index that measures what contractors say they would charge to construct five types of nonresidential buildings rose just 3.5 percent over the year, which Simonson notes is an indicator that contractors were absorbing more of the costs than they were passing on to owners.
Simonson’s analysis highlights that diesel fuel, steel pipe and tube, asphalt paving mixtures and aluminum products were among the products that contributed to the large year-over-year cost increases. From September 2017 to September 2018, there were producer price index increases of 29.3 percent for diesel fuel, 22.1 percent for steel pipe and tube, 11.7 percent for fabricated structural metal, 11.2 percent for asphalt paving mixtures and blocks, and 10.7 percent for aluminum mill shapes. Additionally, Simonson notes that the Trump administration’s tariff on $200 billion worth of Chinese imports include diverse goods important to the construction industry.
These material costs come as the industry is wrestling with labor issues as well. In August, the AGC’s released the results of a survey that found that 80 percent of respondents reported difficulty filling hourly craft worker positions. As a result, 62 percent of firms report they are paying higher salaries to attract and retain workers. Stephen E. Sandherr, the association’s chief executive officer, adds, “The more firms get squeezed by higher materials and labor costs, the less likely they are to continue hiring and investing in new equipment.”