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From the President's Desk

Nonresidential Construction: Prepare for a Stronger Year Ahead

By Alan Beaulieu on August, 19 2021

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Alan Beaulieu

With a reputation as an accurate, straightforward economist, Alan Beaulieu has been delivering award-winning workshops and economic analysis seminars in countries across the world to thousands of business owners and executives for the last 30 years.

Contractors and material suppliers working in nonresidential construction experienced a declining marketplace over the last 15 months while many other industries were experiencing strong growth. The Nonresidential Construction 12MMT has dropped 10.8% since the April 2020 record high; that is a $55.158 billion decline in 15 months. The decline is coming to an end, however, and industry participants should be gearing up for increased bidding or negotiated contract opportunities in the year ahead.

There are not a lot of internal indications to buttress this outlook for rise in 2022, as the second-quarter 3MMT seasonal rise was milder than normal and the 12/12 has yet to establish a low. A positive outlook for 2022 is being supported by the encouraging and sustainable rising trend in the 3/12 rate-of-change and in well-established rising trends in key leading indicators. Expect US Private Nonresidential Construction in 2022 to come in approximately 7.0% above the 2021 level.

Labor

Labor will be an ongoing issue for most companies in 2022 and 2023. Recruitment, retention, compensation, benefits, and culture will be constant topics of conversation at companies that are aggressively battling for labor. Construction job openings have risen to 353,667 since the December 2020 low of 231,333. The battle for skills will be ongoing, and it will be expensive. Wages in the last three months are 4.0% higher than the same quarter last year, and that does not include signing bonuses and other incentives. The good news is that your competitors are facing the same pressure, and these increases will show up in their pricing as well. The reality is that you will have to spend the money if you are going to have the labor to get the work done.

Material Pricing

The US Producer Price Index for Construction Materials for the second quarter of 2021 is a record 29.3% higher than the year-ago level (3/12 basis, and the history spans 73 years). It will be abnormal for the 3/12 to rise beyond October. A 3/12 descent will signal that the rate of rise in the Price Index is easing and that eventually we can expect some disinflation in the Producer Price Index. The general economic outlook and expected supply chain improvements suggest that disinflation will characterize late 2021, and the potential for deflation increases as we go through 2022.

Your Business – Your Future

Nonresidential construction is a broad category that encompasses private construction of the following types: offices, commercial, automotive, lodging, dining, retail, warehouses, storage facilities, schools, dormitories, sports facilities, galleries, museums, hospitals, medical buildings, special care facilities, religious buildings, fitness centers, amusement parks, movie theaters, social centers, transportation facilities, power facilities, and manufacturing facilities. (Source: US Census Bureau). Information is available on these subsections and on specific verticals that your business specializes in. We also have information for individual states and some metro areas from a different source than the Census Bureau. The general nonresidential construction, vertical, or geographic data can give you the means to accurately set budgets and goals for the coming one to three years. Cash-flow planning and capital allocation can be brought to a new level when you see the future first. You can do this using rates-of-change, DataCast™, or other ITR Economics tools. Contact us at itr@itreconomics.com to learn more.

 

Alan Beaulieu
President

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