For the past month our national Construction Health Indicator Score has remained solid at a score of 86. The most influential factors affecting this score are: the highest ever value of the producer price index of concrete ingredients, the lowest value in the past year of construction unemployment, gains in housing completions, and a dip in rebar futures. All of this is good and well, however, this autumn the winds of change are brewing in the U.S. economy. Procore’s Chief economist Anirban Basu predicts that this may affect our health score in the near future.
While contractors continue to report a labor (93) shortage, margins remain stronger than they were immediately following the recession. While many laborers left the industry in the wake of this economic downturn, the result has been a current lack of skilled workers and a rising cost of construction wages. Although these are positive signs of a booming industry, workforce shortages run the risk of undermining the industry’s continued recovery from the Great Recession and could continue to stall an already slow 1% economic growth rate.
In current events, it seems that there is a shift in outreach and strategy among companies who are trying to resolve the labor shortage issue particularly amongst youths and women in particular. Despite outreach efforts, according to the U.S. Department of Labor, the number of women employed in the industry only account for nine percent of U.S. construction workers. Of these, approximately 200,000 are employed in production occupations, such as laborers, electricians, and plumbers. This will be necessary in the coming months in order to improve construction productivity before shortages force the industry to reconsider bidding on projects or delaying schedules. If that happens, overall demand for new development projects could dampen.
Meanwhile, in the commodities (72) realm the overall cost of construction materials has fallen 0.2%. These falling input prices are helping to moderate growth in total construction costs, allowing more projects to move forward and industry backlog to remain stable. Weakness in the global economy coupled with a strong U.S. dollar are main contributing factors. Materials like concrete have been stable and up nearly 4% for the past two years while energy prices are falling.
It was recently reported that our nation’s middle class has seen median household income increase 5.2% from last year, according to data released by the U.S. Census Bureau. This marks the first increase in median income since 2007, the year before the Great Recession started. This could be motive for the Federal Reserve to increase interest rates in the near future. This hike in interest rates could cause the U.S. dollar to strengthen, helping to suppress future materials price increases. According to Basu, “while falling energy prices would negatively impact a number of regional economies across the U.S., the overall impact could be neutral to positive with respect to the durability of the current nonresidential construction cycle.”
While a gain in housing completions has been highlighting our investments (93) score, it is unclear how much longer we will be able to maintain these numbers with the looming threat posed by our labor shortage. Currently, the average construction cost of building a single family home is 13.7% higher now than in 2007, according to a survey by the National Association of Homebuilders. The problem is accentuated by strong demand for newly constructed homes, with sales reaching a nine-year high in July. We have also been experiencing relatively low total public construction spending––0.8% higher than the lowest value in the past year.
That’s all we have for now. Keep building and we’ll keep crunching the numbers. Check back here daily as numbers refresh and we’ll continue to translate this into meaningful digests that will help you make informed decisions all week long.
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