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Labor Shortage Driving Perfect Storm for Contractors, Builders

Labor costs are rising alongside spikes in the costs of goods and services, according to a new analysis from the Associated General Contractors of America (AGC).

Further, the prospect of additional tariffs imposed by President Donald Trump’s administration may further drive up cost increases. According to the AGC report, the price of goods and services already jumped 6.2% in the past year, adding additional pressure to contractors dealing with “widespread labor shortages.”

A survey from the AGC found 80% of respondents have reported a hard time finding workers to fill hourly “craft workers positions,” with 44% noting the cost of projects are “higher than anticipated.” Further, despite increasing wages and benefits, labor shortages are still widespread and jobs continue to take too long to complete.

“Price changes for construction materials in August were mixed, but contractors are likely to be hit with additional cost increases as new tariffs take hold, as well as significant labor cost escalation,” said Ken Simonson, AGC chief economist. “Prices for goods and services used in construction rose over the past year at nearly double the rate that contractors have raised their bid prices to put up new buildings.”

Simonson said the materials that rose in cost include: 

  • diesel fuel
  • aluminum
  • steel
  • gypsum products
  • asphalt paving mixtures
According to the AGC, year-over-year price index increases from August 2017 to August 2018 were nearly 34% for diesel fuel. Additionally, steel mill products jumped 14%, asphalt mixtures were up more than 9%, and gypsum products and truck transport costs spiked more than 8% and 7% respectively.
 
Some builders and experts have expressed concern with tariffs on Canadian lumber, as well. However, while softwood prices are up year-over-year, they actually dipped from earlier in the summer. That's according to the Associated Builders and Contractors (ABC).
 
 “Softwood lumber, the subject of an ongoing trade dispute with the Canadians, experienced a significant dip in price on a monthly basis,” said ABC Chief Economist Anirban Basu. “The price of softwood may have fallen in response to a weakening single-family residential construction market, as home builders have been wrestling with a combination of labor shortages, higher land prices and weakening demand due to higher mortgage rates.' 
 
“Contractors are having to pay more for many construction materials and workers yet appear to have limited ability to pass those costs along to their clients,” added Stephen Sandherr, chief executive officer of the AGC. “The President and Congress can help by removing costly tariffs on key construction materials and boosting investments in career and technical education programs.” 
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