Non-residential construction prices have surged significantly, with a 9% annualized increase in February, driven by rising costs of iron, steel, and lumber, as well as trade uncertainties. According to the Associated Builders and Contractors (ABC), this increase follows a 0.6% rise in overall construction input prices for the month, continuing the upward momentum that began in January.

The 9% annualized rise is a stark contrast to the relatively stable price levels observed over the last two years. While construction costs have remained fairly consistent, "that will likely change in the coming months as tariffs continue to put upward pressure on prices," said Anirban Basu, ABC's chief economist, in a news release.

Trade Fears and Tariffs Driving Up Costs

The jump in non-residential construction input prices follows a dramatic increase of about 40% at the start of the COVID-19 pandemic, after which prices mostly remained flat since 2022. However, President Donald Trump’s shifting tariff policies against Canada, Mexico, China, and the European Union have led to a rapid increase in material costs. Builders have rushed to purchase materials ahead of tariff implementations, which has driven prices higher.

"Iron and steel prices rose at a particularly fast rate in February, a result of tariffs providing domestic producers with increased pricing power," Basu explained, adding that prices "have risen at a far-too-hot 9% annualized rate through the first two months of 2025."

Future Outlook and Concerns

The outlook for the construction sector is increasingly uncertain. Although ABC’s Construction Confidence Index remains positive, 23% of surveyed builders now anticipate a decline in profitability over the next six months. This level of pessimism is the highest since October.

Iron and steel prices rose by 3.9% in February, while softwood lumber prices surged by 2.8%, and steel mill products saw an increase of 2.7%. These price hikes, according to Ken Simonson, chief economist at the Associated General Contractors of America, may only be the beginning.

“It’s a bad sign that construction costs have been rising significantly even before most of the Trump administration’s tariffs have taken effect,” Simonson said in a statement. "Now that many tariffs affecting construction materials are in effect, with more measures pending, construction costs are likely to rise much more."

Retaliatory Tariffs and Their Impact

Simonson also expressed concern over the broader consequences of retaliatory measures from foreign countries. He warned that these could negatively impact U.S. exports and further contribute to rising material costs.

“Foreign retaliation makes U.S. products uncompetitive or bans them altogether,” Simonson said. “These impacts will cause businesses and individuals to lose income, hurting demand for structures and their purchases."

The surge in nonresidential construction prices marks a significant challenge for builders, who are already grappling with rising material costs and uncertainties caused by trade policies. As tariffs continue to affect pricing and foreign competition diminishes, construction costs are likely to rise further, potentially leading to a slowdown in construction activity and profitability.

The construction industry is facing growing challenges as tariffs and trade policies continue to impact material costs. With rising steel and lumber prices, combined with the uncertainty created by changing tariffs, builders may find it difficult to maintain profitability in the coming months. The ongoing volatility in global trade and foreign retaliations further adds to the industry's difficulties, making it essential for builders to navigate these complex economic factors.

Originally Reported by Joe Bousquin in Construction Dive.