ARTICLE
By Mike McManus, Director of Engineering Construction & Industry Relations - Published in Monday Morning Quarterback - January 9, 2023) AGC America recently published an outlook for the construction industry for 2023. Things are looking up in California and for most of the country as well in many ways. The economy continues to recover from the low point of the pandemic, but there is still a chance of recession, we hope not. Construction employment continues to rebound from the pandemic low point of March 2020. Nonresidential construction, which is largely what AGC contractors do, has bounced back and is up about 12 percent since the low point, however it is still almost 2 percent lower than the pre-pandemic employment of February 2020. Residential construction is over 7% higher than the pre-pandemic level, with rising interest rates, that may change shortly. Skilled salary and craft workers are still hard to come by across the country. The majority of contractors report difficulties in filling positions. A report showing job openings and hires from November 2001 to November 2022 demonstrates the recent problems in filling positions. From November 2021 to November 2022, the number of new hires across country dropped by 234,000 or 30%. While over the same period the number of job openings rose by 344,000 or 6.5%. Which demonstrates that open positions that are going unfilled have been steadily rising over the last year, which has not occurred in the last 20 years. Despite the challenges, in California, construction employment is up 4.2 percent over the last year. Also it is up in nearby states, up 10.3 percent in Nevada and up 5.4% in Arizona. Construction materials prices, according to the Bureau of Labor Statistics (BLS) continue to be higher than 2 years ago, when supply chain issues sent many materials’ prices skyrocketing. The aggregate producer price indexes have been falling for the last year, but prices are still on average, about 10 percent higher than 2 years ago. As a comparison, the Consumer Price Index is about 7 percent higher than 2 years ago and seems to be slowly falling back towards the November 2020 level. The last year has seen some major increases in prices and in subcontractor work according to BLS sources. The change from November 2021 have been led by: Diesel Fuel +59.6% Paint +26.3% Asphalt Mixtures +19.8% Concrete Prod’s +14.3% Sub-Contractors Roofing +20.8% Electrical +13.8% Plumbing +15.0% Concrete +10.9% It appears that contractors, have started passing along the increases in material costs to owners in their bid prices. After about a year and a half of bid prices lagging behind the rising costs of materials, that has changed since about July 2020. Bid prices are now rising faster than materials costs. But some damage has been done. The good news is, that work is plentiful in the areas that AGC contractors work, and we expect that to increase in the coming months as more of the federal Infrastructure Investment and Jobs Act (IIJA) funds start showing up as projects to bid on. Thus far we haven’t seen much increase in work volume from the IIJA, but the wave is coming. The increase in work volume over the last year has been healthy in a few sectors across the country: Manufacturing Facilities +43% Commercial Facilities +20% Highway and Street +15% Sewer and Waste Disposal +20% Water Supply +31% The expectations for future work are very high for California contractors, surveyed by AGC America. Sixty-three percent of California contractors report that they expect to increase their firms’ employee head counts, in anticipation of participating in the rising number of project opportunities. This will be a challenge since it will remain difficult to fill positions. Labor availability has resumed being the #1 challenge for many contractors. Materials prices and lead times are now a mixed bag as opposed to be all upward a year ago. We hope that the positive trends, of normalizing prices and lead times, continue into 2023. The only sector that looks to flatten out or pull back is residential construction. The rising interest rates may cool what has been a hot sector, even though housing availability is, in California, a critical issue driving many other societal ills.
By Mike McManus, Director of Engineering Construction & Industry Relations - Published in Monday Morning Quarterback - January 9, 2023)
AGC America recently published an outlook for the construction industry for 2023. Things are looking up in California and for most of the country as well in many ways. The economy continues to recover from the low point of the pandemic, but there is still a chance of recession, we hope not.
Construction employment continues to rebound from the pandemic low point of March 2020. Nonresidential construction, which is largely what AGC contractors do, has bounced back and is up about 12 percent since the low point, however it is still almost 2 percent lower than the pre-pandemic employment of February 2020. Residential construction is over 7% higher than the pre-pandemic level, with rising interest rates, that may change shortly.
Skilled salary and craft workers are still hard to come by across the country. The majority of contractors report difficulties in filling positions. A report showing job openings and hires from November 2001 to November 2022 demonstrates the recent problems in filling positions. From November 2021 to November 2022, the number of new hires across country dropped by 234,000 or 30%. While over the same period the number of job openings rose by 344,000 or 6.5%. Which demonstrates that open positions that are going unfilled have been steadily rising over the last year, which has not occurred in the last 20 years. Despite the challenges, in California, construction employment is up 4.2 percent over the last year. Also it is up in nearby states, up 10.3 percent in Nevada and up 5.4% in Arizona.
Construction materials prices, according to the Bureau of Labor Statistics (BLS) continue to be higher than 2 years ago, when supply chain issues sent many materials’ prices skyrocketing. The aggregate producer price indexes have been falling for the last year, but prices are still on average, about 10 percent higher than 2 years ago. As a comparison, the Consumer Price Index is about 7 percent higher than 2 years ago and seems to be slowly falling back towards the November 2020 level.
The last year has seen some major increases in prices and in subcontractor work according to BLS sources. The change from November 2021 have been led by:
Diesel Fuel +59.6%
Paint +26.3%
Asphalt Mixtures +19.8%
Concrete Prod’s +14.3%
Sub-Contractors
Roofing +20.8%
Electrical +13.8%
Plumbing +15.0%
Concrete +10.9%
It appears that contractors, have started passing along the increases in material costs to owners in their bid prices. After about a year and a half of bid prices lagging behind the rising costs of materials, that has changed since about July 2020. Bid prices are now rising faster than materials costs. But some damage has been done.
The good news is, that work is plentiful in the areas that AGC contractors work, and we expect that to increase in the coming months as more of the federal Infrastructure Investment and Jobs Act (IIJA) funds start showing up as projects to bid on. Thus far we haven’t seen much increase in work volume from the IIJA, but the wave is coming. The increase in work volume over the last year has been healthy in a few sectors across the country:
Manufacturing Facilities +43%
Commercial Facilities +20%
Highway and Street +15%
Sewer and Waste Disposal +20%
Water Supply +31%
The expectations for future work are very high for California contractors, surveyed by AGC America. Sixty-three percent of California contractors report that they expect to increase their firms’ employee head counts, in anticipation of participating in the rising number of project opportunities. This will be a challenge since it will remain difficult to fill positions. Labor availability has resumed being the #1 challenge for many contractors. Materials prices and lead times are now a mixed bag as opposed to be all upward a year ago. We hope that the positive trends, of normalizing prices and lead times, continue into 2023.
The only sector that looks to flatten out or pull back is residential construction. The rising interest rates may cool what has been a hot sector, even though housing availability is, in California, a critical issue driving many other societal ills.