An Outlook on Material Cost for Q1 of 2022

Commodity prices have been increasing across the board. Overall construction costs for the 12-month period through the end of August 2021 rose by 4.5 percent, with material costs leading the way with a massive increase of 23.1 percent. Many products, as well as trucking services, contributed to the extreme runup in construction costs. 

Between October of 2020 and November of 2021, the price of steel rose 142 percent, according to the Producer Price Index. Aluminum mill shapes rose 41%; copper and brass mills shapes rose 38%; plastic construction products 33%; gypsum rose 21%; and insulation materials rose 17%.

As the world awaits the next moves of Vladimir Putin, the construction industry is bracing for what seems like the inevitable invasion of the Ukraine by Russian forces. If this conflict is anything like wars in the past, we can expect the costs of building materials to rise significantly. During the Iraq war, the price of lumber soared. Even though it is unclear what the United States’ involvement will be, if any, general contractors can still expect a chain reaction to some degree. 

Another factor to consider is the tariffs the Trump administration placed on China, Europe, and Japan. There was a 25 percent tariff placed on steel and a 10 percent tariff on aluminum, dating back to 2018. 

A Construction Forecast for Q1 of 2022

The positive trajectory of the construction industry in Arizona and Texas is continuing. We’ve been fortunate in that the sectors in which we build have continued to grow. There were some sectors, including office and retail, that were impacted heavily by the pandemic, but indicators show that 2022 will rebound for those sectors as well. 

Training and mentorship is filling the skilled labor gap at LGE Design Build, increasing employee retention. Additionally, compensation is on the rise, making the construction trade a more attractive employment option. Total employment is expected to grow by 1 percent annually, with the fastest job gains occurring in the construction sector.

Consumer demand will remain high. However, the manufacturing sector grew in November 2021 for the 18th consecutive month, slightly improving the supply chain. Supplier deliveries will be decreasing at a slower rate, but backlogs will continue to grow. The lack of raw materials will continue to affect every construction sector.

Overall construction volume is expected to begin growing in the spring of 2022. Supply chain issues and material scarcity will continue to drive prices upwards. Final construction costs are expected escalate in the range of 4 to 7 percent into 2022.