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3 days ago
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Tariffs and Interest Rates Squeeze Construction Budgets
The Construction MMI (Monthly Metals Index) traded flat month-over-month, with no noteworthy price movement in either direction. Meanwhile, the U.S. construction industry is bracing for fallout from a new round of tariffs on key building materials. Industry groups warn that these tariffs, alongside persistently high interest rates, threaten to squeeze project budgets. Surging Costs for Steel, Aluminum and Other Metals As metal prices remain somewhat volatile, contractors nationwide report mounting cost pressures. Now that President Trump has announced more duties, including a 50% tariff on all copper imports, further cost spikes appear imminent. Ken Simonson, chief economist of the Associated General Contractors of America (AGC), cautioned, 'It is likely that contractors will be hit with substantial additional price increases shortly, unless the tariffs are postponed or rolled back.' Such material inflation could strain profit margins across the construction industry. Many U.S. builders operate on thin margins (often <5%), so a jump of 5–7% in overall project costs can damage profitability. Industry estimates forecast that the 2025 tariffs could drive steel prices up by ~8.2% and aluminum by ~5.7%. As a result, total construction costs would rise 5–7%. Recent Producer Price Index data confirmed that essential products like structural steel beams, rebar and aluminum components are all more expensive. In fact, prices for aluminum mill shapes were nearly 10% higher this January than a year prior, while copper/brass mill forms surged over 12% year-on-year. Tariffs and Interest Rates Not only are material costs facing potential price spikes, but builders are also contending with a challenging financing environment. The Federal Reserve's 2022–2023 interest rate hikes took benchmark rates from near-zero to over 5%, the highest in decades. Although the Fed eased slightly with a few rate cuts in late 2024, bringing its key rate to about 4.25–4.50%, borrowing costs remain elevated. This means that commercial construction loans and mortgages are carrying 6–7% interest rates, roughly double the lows seen a few years ago. These higher rates have made it pricier for developers to finance new projects, adding another layer of cost on top of expensive materials. The Construction Industry Could See Good News Soon Fortunately, there is hope on the horizon. Cooling inflation earlier this spring prompted optimism that the Fed might cut rates later in 2025, potentially spurring construction activity. 'Due to a cooler-than-expected inflation reading in May, the chances of an interest rate cut by the Federal Reserve in 2025 have improved,' noted Anirban Basu, chief economist of Associated Builders and Contractors. Lower interest rates would reduce financing costs and could help offset the impacts of tariffs by boosting construction industry project demand. However, the latest data complicates that outlook. Inflation ticked up to 2.7% in June (a four-month high) as consumer prices began to reflect the new tariffs. Analysts warn that full tariff pass-through hasn't even hit yet, meaning inflation could rise further in the coming months. If tariffs keep price levels elevated, the Fed may delay rate cuts to avoid fueling more inflation, leaving builders stuck with high borrowing costs for longer. For procurement executives navigating these cross-currents, knowledge is power. MetalMiner's weekly newsletter provides timely market insights on metal price drivers and macroeconomic news, enabling teams to adjust their sourcing strategies in real-time. Sign up here. In the coming months, construction industry executives will be keeping a close eye on Washington and the Federal Reserve. For now, tariff policies remain fluid. For instance, a proposed extra 25% tariff on copper and lumber has been floated, but not yet enacted. Any such move could further jolt material markets and hit home builders (many of whom rely on Canadian lumber and Mexican gypsum) especially hard. On the monetary front, the consensus is that the Fed will hold rates steady for now. If inflation stabilizes later this year, a gentle rate cut or two is possible by late 2025. But until there's clarity, caution will rule. 'Our view is that continued investment into construction will remain cautious, for now,' said Michael O'Reilly of construction consultancy RLB. He went on to note that uncertainty around tariffs and policy changes is keeping developers in 'wait-and-see mode.' Ultimately, the combination of tariff-driven cost inflation and high interest rates is creating a careful balancing act for U.S. construction firms. As a result, industry leaders are focusing on cost control, strategic sourcing and contractual protections to weather the storm. Many are also leveraging data and forecasts to make smarter buying decisions. For example, some MetalMiner subscribers use customized price forecasting on MetalMiner Select to time their metal purchases and negotiate better with suppliers. By blending such tactics with prudent project planning, construction companies can strive to preserve their margins and keep projects on track. By Metal Miner More Top Reads From this article on
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5 days ago
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Construction costs rise as tariff clock ticks
This story was originally published on Construction Dive. To receive daily news and insights, subscribe to our free daily Construction Dive newsletter. Dive Brief: Construction input prices ticked up 0.2% in June, driven by increases in key materials such as copper and fabricated structural metal products, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics' Producer Price Index data. Input costs now sit 2.1% higher overall and 2.5% higher for nonresidential construction compared to a year ago, according to the report. Through the first half of 2025, nonresidential prices climbed at a 6% annualized rate. The June data predates the steepest tariffs set to take effect Aug. 1, leaving contractors bracing for more volatility as additional duties loom. Dive Insight: Contractors absorbed another round of steady cost increases in June, even before the most aggressive tariffs take hold later this summer, according to the Associated General Contractors of America. Aluminum mill shapes climbed 6.3% over the past year, steel mill products rose 5.1% and lumber and wood products increased 4.8%, according to the report. More extreme increases hit certain structural steel components, including a 22.5% spike in fabricated metal for bridges and 8.3% for bar joists and rebar. 'The fact that construction materials prices are rising even before the steepest proposed tariffs have taken effect doesn't bode well for what will happen in August if the promised new tariffs are implemented,' said Ken Simonson, AGC chief economist. 'Rising construction costs and economic uncertainty are already causing some owners to put projects on hold, which will only get worse if costs jump again.' The Trump administration raised steel and aluminum tariffs to 50% last month and plans to impose a similar 50% duty on copper on Aug. 1. Broader import restrictions also still remain under consideration. At the same time, inflation appears once again to be gaining momentum. Core good prices, excluding automobiles, increased at their fastest pace since late 2021 in the June Consumer Price Index report, signaling additional risk for contractors on the horizon, said Anirban Basu, ABC chief economist. 'Nonresidential input price escalation has accelerated in 2025," said Basu. 'While it is unclear how and when trade policy will affect construction materials prices, the impact was evident in June's CPI release.' Nevertheless, Basu said many contractors remain upbeat about their margins. That outlook may reflect federal tax changes under the One Big Beautiful Bill Act, which made 100% bonus depreciation permanent and helped offset some pressure from rising input costs. 'Economic uncertainty remains extraordinarily elevated,' said Basu. 'What is all but certain is that the Federal Reserve will not be cutting interest rates at its July meeting. Despite higher-for-longer interest rates and rising input prices, contractors remain relatively optimistic.' Still, AGC officials warn confidence may erode if tariff-driven increases persist. If costs spike too sharply, more developers may choose to delay or cancel projects outright, according to the report. 'The construction industry is poised to benefit from greater tax certainty as well as the administration's efforts to streamline permitting and reduce needless regulatory burdens,' said AGC CEO Jeffrey Shoaf in the release. 'Finding a way to provide greater certainty on materials prices is the best way to make sure the new tax and regulatory approach have the best possible impact on economic activity.' Recommended Reading Construction costs jump at a 6% annualized rate
