What January Told Us About the Ups and Downs of Construction
The numbers are in for January for the Construction industry, and it’s a pretty mixed bag.
The numbers show that trends in place at the end of last year are continuing to drive the overall business environment in 2022. Building has increased but so have prices, again. Contractors are beginning to increase prices but still lagging increased material costs.
Compared to January 2021, material prices increased over 20 percent according to Associated General Contractors of America (AGC). In their analysis of government data AGC found that
The producer price index for inputs to new nonresidential construction—the prices charged by goods producers and service providers such as distributors and transportation firms—increased by 2.6 percent from December to January and 20.3 percent over the past 12 months. In comparison, the index for new nonresidential construction—a measure of what contractors say they would charge to erect five types of nonresidential buildings—climbed by 3.8 percent for the month and 16.5 percent from a year earlier.
Among the material prices that increased the most from the previous year were steel, up almost 113 percent. Plastic construction products were up 35 percent, diesel was up 56.5 percent. Lumber was up over 21 percent and many other essential building supplies marked double digit increases for the year.
Supply chain issues, tariffs and a labor shortages continue to weigh heavily on the industry as well as the larger economy. Many are asking for more steps to be taken at the federal level to address these issues.
“Spiking materials prices are making it challenging for most firms to profit from any increases in demand for new construction projects,” said Stephen E. Sandherr, the association’s chief executive officer. “Left unabated, these price increases will undermine the economic case for many development projects and limit the positive impacts of the new infrastructure bill.”
The good news on this front is that the Commerce Department announced that it will decrease the tariff on Canadian softwood lumber imports by almost 8 percent. The government doubled the tariff rate last November to nearly 18 percent from its previous level. The U.S. has argued that the Canadian government unfairly subsidizes lumber for decades. Since the Reagan Administration reached this conclusion, every subsequent administration has tried to address it but Canada continues the policy.
Despite all of the rising costs for materials in the construction industry, business activity improved considerably. According to Dodge Construction Network total construction starts increased 8 percent from the year before. “Nonresidential building starts were up 14%, nonbuilding starts rose 12% and residential starts gained 2%.”
The outlook for the year continues to look somewhat the same. There continues to be strong demand for new construction so far even despite rising costs.
The issues with the supply chain may be the most critical for the industry and broader economy. Unfortunately those issues are likely to be with us through the end of the year at least. It was initially thought that the supply chain would balance itself out fairly quickly once the pandemic was somewhat under control. More recently there has been recognition that many of the issues are long-term structural issues that have been a problem for decades and were exacerbated by the pandemic.
Though the rest of the year may continue to see similar challenges to last year, we can look forward to slowly improving conditions regarding price increases, supply chain issues and labor shortages.
