Construction Costs

Bid Prices Increase in October from Wages, Delivery Delays, Diesel Costs


October 2022 national data reflects a sharp rise in bid prices as contractors continue navigating ongoing supply chain challenges, labor costs and more.

The Associated General Contractors of America Chief Economist Ken Simonson says rising construction costs continue threatening to undermine demand for projects. He urges administration officials to remove remaining tariffs on construction materials and to boost investments in construction-focused education and training.

“Although some material costs have moderated, other costs are still climbing regularly while contractors are incurring added expenses from delays caused by supply chain disruptions, shortages of skilled labor and rising interest rates,” Simonson said. “Some owners may delay or cancel projects as the price to complete them continues to increase, threatening to undermine overall demand.”

A 3 percent jump in the producer price index for new commercial construction – the measure of what a fixed group of contractors estimate they’d charge to build a specific set of nonresidential projects – occurred from September 2022 through October 2022. Over the past 12 months, the PPI increased 11.2 percent and 20.2 percent over the 24-month span from October 2020 through October 2022.

Simonson added that the input price, however, does not capture contractors’ added costs from materials that are not delivered on schedule. It also doesn’t include rising wage rates and overtime pay, nor does it factor in the financial costs associated with delays.

Several material categories posted double-digit spikes in October as compared with 12 months earlier. The PPI for diesel fuel soared 9.8 percent for the month and 61.5 percent year over year. The index for cement, Simonson says, rose by 2.5 percent last month, bringing the year-over-year increase to 13.4 percent. And the index for architectural coatings – such as paint – surged 1.1 percent for the month and a whopping 27.5 percent over 12 months.

“Tariffs and regulations are making construction more expensive,” said AGC of America CEO Stephen Sandherr. “If left unchecked, they will undermine private-sector demand for projects and limit the impacts of new infrastructure investments.”

Construction Costs, Bid Prices Soar in April; Starts Jump, ConstructConnect and Dodge Report


Construction input costs rose faster than bid prices year-over-year (y/y) again in April, according to Bureau of Labor Statistics data posted on May 12. The producer price index (PPI) for material and service inputs to new nonresidential construction increased 0.8% for the month and 20.9% y/y. The PPI for new nonresidential building construction—a measure of the price that contractors say they would bid to build a fixed set of buildings—increased 4.1% for the month and 19.9% y/y. April was the 19th-straight month in which the cost index rose more than the bid-price index on a year-over-year basis but the 1-percentage-point gap was the smallest since November 2020. Prices rose faster than bid prices for a wide range of inputs in the cost index: diesel fuel, up 4.7% for the month and 86% y/y; aluminum mill shapes, 6.2% and 45%, respectively; architectural coatings, 9.8% and 32%; plastic construction products, 1.2% and 30%; truck transportation of freight, 4.4% and 27%; steel mill products, 2.4% and 25%; and asphalt and tar roofing and siding products, 0.9% and 21%. Bid prices, as measured by PPIs for new buildings, rose 4.7% for the month and 32% y/y for new warehouse construction; 4.7% and 23%, respectively, for industrial buildings; 2.7% and 20% for offices; 5.4% and 18% for health care buildings; and 4.1% and 16% for school buildings. PPI increases for new, repair, and maintenance work by subcontractors amounted to 3.0% for the month and 22% y/y for concrete contractors; 2.6% and 18%, respectively, for roofing; 4.4% and 16% for plumbing; and 1.2% and 12% for electrical contractors. AGC posted tables and a graph of construction PPIs.

The value of construction starts in April soared 45% y/y in current dollars (i.e., not inflation-adjusted) and increased 11% year-to-date for the first four months of 2022 compared to January-April 2021, not seasonally adjusted, data firm ConstructConnect reported. Nonresidential building starts rose 10% year-to-date, with commercial starts down 7.6%, institutional starts down 1.6%, and industrial (manufacturing) starts up 142%. Engineering (civil) starts leaped 22% year-to-date, with road/highway up 35%, water/sewage up 19%, power and other miscellaneous down 19%, bridges up 38%, dams/marine up 21%, and airports up 56%. Residential starts rose 7.0% year-to-date, with single-family up 9.1% and apartments up 2.0%. The biggest start “was Tellurian’s Driftwood LNG production and exporting facility south of Lake Charles in Louisiana. The construction component, separate from equipment, has been estimated by ConstructConnect at $10 billion.”

Total construction starts rose 3% from March to April in current dollars at a seasonally adjusted annual rate and 6% year-to-date, data firm Dodge Construction Network reported on Monday. Nonresidential building starts climbed 6% for the month and 19% year-to-date. Nonbuilding starts fell 4% for the month and 2% year-to-date. Residential increased 4% from March and 3% year-to-date. “The construction sector is seemingly shrugging off the fear of higher interest rates and a potential recession,” said Chief Economist Richard Branch. “Many building sectors have made the turn from weakness to recovery as underlying economic growth and hiring are solid. With the pipeline of projects in planning continuing to expand, this trend should continue in the months to come. However, the concern that the Federal Reserve will force the U.S. into recession later this year may thwart the momentum in construction starts. While recession is not our baseline forecast, it cannot be fully discounted.”

Housing starts (units) in April dipped 0.2% at a seasonally adjusted annual rate from the downwardly revised March rate but increased 15% y/y and 10% year-to-date, the Census Bureau reported on Wednesday. Single-family starts slumped 7.3% for the month but rose 3.7% y/y and 4.1% year-to-date. Multifamily (five or more units) starts jumped 17% for the month, 42% y/y and 27% year-to-date. Residential permits declined 3.2% from March but rose 3.1% y/y and 2.2% year-to-date. Single-family permits slid 4.6% for the month, 3.6% y/y, and 2.2% year-to-date. Multifamily permits slipped 0.6% from March to April but climbed 16% y/y and 12% year-to-date. The number of authorized multifamily units that have not started—an indicator of potential near-term starts—soared 29% y/y. Census posted that various series have been revised as far back as 2016.

The Architecture Billings Index (ABI), which the American Institute of Architects calls “a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months,” registered a score of 56.5 in April–the 15th consecutive reading above 50, the institute reported on Wednesday. The ABI is derived from the share of responding architecture firms that report a gain in billings over the previous month less the share reporting a decline in billings, presented on a 0-to-100 scale. Any score above 50 means that firms with increased billings outnumbered firms with decreased billings. Scores by practice specialty (based on three-month moving averages) all rose from March and topped 50: 51.8 for firms with a predominantly institutional practice (up from 50.4 in March); 57.2 for residential (up from 56.3); 60.7 for commercial/industrial (up from 55.3, and a record high, in a series that began in 1995); and 61.2 for mixed-practice firms (a 17-year high, up from 58.1 in March). “While business conditions at architecture firms have been very encouraging over the past year, project activity has been steadily shifting toward work on existing buildings,” said Chief Economist Kermit Baker. “Billings for reconstruction projects exceeded those for new construction for the first time in the last two decades. While the reconstruction share of building activity will continue to ebb and flow, in general, we’ll continue to move toward an increased share of building activity for reconstruction and a decreased share for new construction.”