Dive Brief:

• Turner Construction's Second Quarter 2018 Turner Building Cost Index reflects a 5.63% increase in construction costs since the second quarter of 2017 and a quarter-over-quarter increase of 1.68%.
• The index, which, as of the second quarter, sits at a value of 1089, measures non-residential U.S. construction costs and, according to Turner, has been rising steadily since at least 2014 in the wake of increased building activity. More expensive raw materials and the labor shortage are both contributors to higher costs.
• When compiling data for the index, Turner takes into consideration U.S. labor rates and productivity, material prices and the state of competition in the construction market. Turner said that other similar indices do not take all of these factors into account, setting its Building Cost Index apart.  

Dive Insight:

Although Turner's index formula may be unique in the industry, the results are not out of line with other organizations that track construction industry costs.

The skilled labor shortage includes managerial, supervisory and craft positions and is starting to push wages higher. Until relatively recently, contractors, who have seen backlogs increase but are still competing for work, which translates to still-thin profit margins, have been hesitant to increase pay rates. However, according to government data, average construction wages for those paid on an hourly basis have increased to $30 per hour, which is starting to pull in more experienced workers.

No matter how much wages increase, however, there is a limited pool of qualified individuals. So, construction companies, in their search for upper management and in-office employees, are pulling out all the stops in their recruitment efforts, and that includes looking for students in degree programs outside of construction, using high-profile projects to spark interest and focusing on the industry's advancing technologies.

Material prices have been on the rise for a while now and are expected to get a boost from President Donald Trump's steel (25%) and aluminum (10%) tariffs. Many industry groups have come out against the new duties, arguing that they will stymie industry growth and even interfere with major infrastructure initiatives like the $1.5 trillion program the president has proposed. In addition, Canada, Mexico and the European Union have vowed to impose similar tariffs on goods originating from the U.S. And an escalating trade war with China, according to the Association of Equipment Manufacturers, threatens those who manufacture and sell construction and other types of equipment.