Construction confidence, demand high amid lost jobs on net, rising input prices

Dr. Anirban Basu, chief economist for ABC, said that "the cure for high prices is high prices."

Following last week’s news that construction lost 7,000 jobs on net while seeing input prices rise by 2.8% in the month of June, the industry got some reassurance from Dr. Anirban Basu, chief economist with Associated Builders and Contractors (ABC), during a webinar with Construction Executive.

“So much normalcy has returned to the construction industry” in the fallout of the Covid-19 pandemic, Basu said during Construction Executive’s Q2 economic update and forecast presentation. “Typically, construction comes back after the general economy. This time, [the industry] came back quicker than normal.”

Basu said that the high input prices (24.8% higher than a year ago) should subside eventually – but they likely won’t ease to pre-pandemic levels.

“Demand is high, and supply hasn’t caught up; right now, it’s demand shock,” Basu said.

The rising prices is an issue, the economist said, but he followed that up saying: “The cure for high prices is high prices. When they’re high, suppliers are incentivized to increase capacity.”

The explanation for that claim is simple economics, as demand is currently butting up against supply constraints (the capacity for producing sawmill lumber, for instance).

Basu said it’s hard to add capacity in short term, and despite the confidence in the industry (ABC’s Construction Confidence Index’s three indices are above the threshold of 50, which indicates expectations of growth over the next six months), some issues persist in construction, with the ongoing skilled worker shortage looming as the largest.

During the webinar, the attendees voted on several subjects, the first asking about the leading challenge their company faces today: 52% chose the skills/worker shortage, and 37% went with supply chain or materials issues (the remaining 11% were split among insufficient demand for construction, availability of project financing and other/none of the above).

Basu Backlog rising – ABC reported its Construction Backlog Indicator rose to 8.5 months in June – there’s increasingly more work under contract yet to be delivered, which means the demand for workers will increase even more.

And once the federal government passes President Joe Biden’s infrastructure legislation, that demand for workers will go up even more while hopefully creating a larger middle class, Basu said.

That backlog number was backed up by another poll during the webinar; when asked how their company’s backlog has fared over the past three months, 29% of attendees said it’s risen considerably, 37% responded it’s risen slightly, 23% reported it’s stayed the same, and only 11% said thei backlog has declined (either slightly or considerably).

“Frankly, I would not have predicted that demand for construction services would be so high right now,” Basu said.

During a Q&A session at the end of the webinar, Basu first fielded attendees’ questions about the need for vocation training.

“[Four-year college degrees] aren’t the pathway for everyone,” he said. “More vocational training that starts in high school, the reemergence of shop class … we need to get back to that in America.”

Answering a question about employment data, Basu said that the industry is also losing workers due to retirement and the lure of other industries. Later, he advised the attendees to ask prospective employees what they want – be it more flexibility, more compensation and opportunities to work with exciting technology.

“Ask them what they want in a workplace and see what will let them come and say yes,” Basu said.