Construction Material Costs Surge for Third Month as Tariffs Tighten the Screws

The U.S. construction industry is grappling with a sharp and sustained rise in materials costs, marking the third consecutive month of increases as new tariffs disrupt supply chains and inject uncertainty into project planning.

Tariffs Drive Rapid Price Escalation

Construction input prices have surged at a 9.7% annualized rate through the first quarter of 2025, according to the latest Producer Price Index (PPI) data. “Construction input prices increased at a rapid pace for the third consecutive month in March and have now risen at a 9.7% annualized rate through the first quarter of 2025,” said Anirban Basu, Chief Economist at Associated Builders and Contractors (ABC). “The emerging effects of tariffs are glaring in the March data release”.

The Trump administration’s recent imposition of sweeping tariffs—10% on all U.S. trading partners, 34% on imports from China, and 20% on goods from the European Union—has sent shockwaves through the industry. While some key materials like steel, aluminum, lumber, and copper are exempt from certain reciprocal tariffs, steel and aluminum importers have faced a 25% tariff since March, and softwood lumber importers are contending with tariffs as high as 145%.

Key Materials See Steep Increases

• Lumber and metals prices shot up in March, with contractors receiving a wave of price hike notices even before new tariffs took effect. “Lumber and metals prices shot up in March, while contractors’ inboxes are bulging with ‘Dear valued customer’ letters announcing further increases for many products,” said Ken Simonson, Chief Economist at the Associated General Contractors of America (AGC).
• Iron and steel prices rose 3.9%, softwood lumber increased 2.8%, and steel mill products climbed 2.7% in February alone, according to the U.S. Bureau of Labor Statistics.
• Wood is expected to increase by 25% to 30%, and steel by 20% to 25% in the coming months, with HVAC equipment projected to rise 10% to 15%.

Uncertainty Clouds Project Planning

The volatility in material costs is making it increasingly difficult for contractors to plan and budget for both public and private sector projects. “Rapid-fire changes in tariffs threaten to drive prices higher for many essential construction goods,” Simonson warned. Contractors are accelerating procurement to lock in prices early, but the unpredictability of tariffs is forcing many to add extra contingencies to project budgets.

Michael O’Reilly, Vice President at Rider Levett Bucknall, noted, “The latest PPI data indicates one of the largest monthly increases that we have seen in the past 36 months. We are advising clients to consider additional, separate contingencies depending on the stage of the project and the potential exposure to risk”.

Delays, Cancellations, and Broader Economic Impact

The surge in costs and uncertainty is already leading to project delays and cancellations, particularly for projects still in the planning stages. “While contractors remain busy for the time being, this pace of input price escalation, coupled with rising uncertainty, will cause projects to be delayed and canceled if it persists for any meaningful length of time,” Basu cautioned.

Nonresidential construction spending hit a record $1.26 trillion in February, but experts warn that momentum may slow as rising costs and funding uncertainties take hold. The Dodge Construction Network reports that the median time for nonresidential projects to move through planning is now 6.5 months longer than in 2019, reflecting growing hesitancy among developers.

Industry Leaders Call for Policy Reconsideration

Industry groups are urging the administration to reconsider the new tariffs. “Our members are trying to deliver the best value for the public and private sector clients they serve,” said AGC CEO Jeffrey Shoaf. “But it is hard to deliver that best value when you have no idea how much you are going to have to pay for many of the materials required to build projects”.

Looking Ahead

As tariffs continue to reshape the construction landscape, contractors and developers face a challenging environment marked by rising costs, supply chain disruptions, and heightened risk. The industry’s ability to adapt will depend on policy decisions in the coming months and the resilience of supply chains both domestically and abroad.

“Even contractors who are buying from U.S. producers are going to feel the impact as those producers raise their prices in tandem or at least close to matching the imported prices, or a surge of orders from U.S. producers to get away from the tariffs means higher costs, longer delivery times,” Simonson explained.

With material costs now 41% higher than in February 2020 and profitability expected to decline by 23% over the next six months, the construction sector is bracing for continued turbulence as tariff pressures persist.