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Construction Firms are Getting Some Needed Relief from Rising Materials Costs, but New Buy America Rules Will Pose a Big Challenge to Firms Trying to Find Materials that Comply, Leading to Increased Costs

The price of materials and services used in nonresidential construction decreased 0.6 percent from April to May, while an index that measures contractors’ bid prices inched up by 0.1 percent, according to an analysis by the Associated General Contractors of America of government data released today. Association officials said contractors are finally seeing some relief from recent supply chain problems and price escalations but cautioned that some key materials are still very hard to find and warned that new federal Buy America mandates could lead to future price escalations.

“Contractors’ bid prices have been virtually flat since January as supply and price shocks from Russia’s attack on Ukraine and the pandemic have faded,” said Ken Simonson, the association’s chief economist. “But there are still exceptionally long lead times for electrical equipment and renewed or persistent price increases for steel and concrete.”

The producer price index for new nonresidential construction—a measure of what contractors report they would charge to put up a specific set of buildings—edged up 0.1 percent in May. That increase followed a drop of 0.3 percent in April and brought the index back to its level in January, Simonson noted.

The index for inputs to nonresidential construction, which is a weighted average of the prices charged by goods producers and service providers such as distributors and transportation firms, fell 0.6 percent from April to May, the third-straight monthly decrease. Prices for most major construction inputs were stable or declined in May. But the index for steel mill products jumped 5.2 percent, following a 3.6 percent increase in April. The index for concrete products rose for the 30th month in a row, by 0.8 percent, producing a year-over-year increase of 12.5 percent.

Association officials said that new Buy America requirements that are part of the bipartisan infrastructure bill will severely limit the supply of materials contractors can use and increase the costs of those products when the guidance goes into effect. They noted that the new requirements are so strict that many products currently made in the U.S. will not comply because some of the materials used to make those products come from overseas.

“Federal officials are attempting to wish away a diversified global supply chain for construction materials by regulatory fiat,” said Stephen E. Sandherr, the association’s chief executive officer. “All of us want more domestic manufacturing, but the reality is that it will take years – if ever – before the products those factories make will be entirely sourced within the U.S., as the administration is seeking to mandate.”

View producer price index data.