What to expect for construction in 2022
By Riley SimpsonDecember 08, 2021
With 2022 only three weeks away, some issues that have plagued the construction industry – supply chain stoppages, inflation of materials prices and shortages of skilled labor – will likely continue into the next year, according to Dr. Anirban Basu, chief economist for American Builders and Contractors (ABC).
In a year-end economic forecast webinar with Construction Executive, Basu recapped data from 2021 and looked ahead at trends for construction going forward.
Overall, he is projecting growth in the U.S. economy and a 3-4% increase in the Gross Domestic Product (GDP). However, construction might need more time to fully rebound.
“Here’s the big picture: The average construction firm in U.S. is busy, so what’s the problem?” Basu said. “With the new infrastructure package signed into law, an outsider would think the construction industry would be euphoric.”
Indeed, President Joe Biden passed the $1 trillion bipartisan Infrastructure Investment and Jobs Act in November, but the industry’s economic health is still being affected by lingering Covid-19 pandemic, the ongoing labor shortage, still-high materials prices and supply chain setbacks.
During the webinar, Basu polled the attendees about the leading challenges their firms are facing today: More than 90% answered either supply chain/materials issues or skilled worker shortages (only 6% responded that insufficient demand for construction services is the biggest challenge).
Basu, citing data from the U.S. Consumer Price Index, said that the nation is facing “astonishing” inflation.
According to the Inputs to Construction Producer Price Index (PPI) and as of Oct 2021, prices are up 21.1% year over year, a figure that includes:
- Natural gas, +231.3%
- Steel mill products, +141.6%
- Crude energy products, +135.6%
- Crude petroleum products, +116.9%
- Iron and steel, +101.5%
- Fabricated structural metal products, +38.8%
- Nonferrous wire and cable, +31.3%
And although the infrastructure deal will undoubtedly bring many opportunities and projects to construction, those jobs will require contractors to purchase materials at these sky-high prices.
“Bridges, sewers [and other infrastructure projects] are metal-intensive,” Basu said. “I don’t think you’re going to see huge jumps [in prices] next year, but I also don’t think you’ll see massive relief either.”
And Basu said that non-residential building construction is costing more all over the country: The price of delivering a new building has increased 14.1% in the Northeast, 13.9% in the West, 11.9% in the South and 11% in Midwest.
From February 2020 to October 2021, and broken down by subsector, lodging (hotels and resorts) construction has been hit hardest during the pandemic, with a decrease in spending of 47.6%; another “sloppy subsector,” according to Basu, is offices, which is down 11.3%.
Although these make sense in the time of Covid-19 (with travel and in-office work becoming less practical), Basu said the office subsector’s figures are misleading and would be far worse, if not for the inclusion of data center construction – a booming industry.
The other main challenge, the workforce shortage, has also been exacerbated by the pandemic: Construction lost 115,000 jobs from February 2020 to October 2021.
“It’s more difficult to convince younger people that construction offers a path to prosperity,” Basu said. “Many Americans are looking for job looking for remote work and flexibility. For employers who need workers onsite, it’s going to be challenging.”
There are some reasons for hope.
When breaking down construction employment growth over that same time period, four specific Midwestern metro areas have made significant gains: Minneapolis/St. Paul (up 21.5%), Detroit (16.4%), St. Louis (12.9%) and Chicago (12.3%).
Basu also said that a seemingly unlikely factor could help turn around the labor shortage: inflation.
“I think more and more people are going to rejoin labor force because of inflation,” Basu said. “Food prices, fuel prices and [other prices] are going up. It’s one of the positive impacts of inflation. It’s time to get back to work. It’s one of the reasons projecting growth in 2022.”
Basu posed a second poll question that indicated additional optimism by asking how the webinar attendees’ backlogs have fared over the past three months, since the previous quarterly forecast.
Only 17% answered that their backlogs have declined, either slightly or significantly, with 28% saying their backlogs have remained the same and a healthy 54% saying their backlogs have increased, wither slightly or significantly.
“Generally speaking, backlog has been on the rise,” Basu said. “At least backlog is no longer seemingly slipping.”
As of October 2021, ABC’s Backlog Indicator had risen to 8.1 months.
The webinar’s final poll asked where attendees expect their company’s profit margins to be a year from now.
Again, only 26% answered slightly or significantly lower, with 32% answering the same and 35% saying slightly higher (only 8% answered significantly higher).
Basu said that the high backlog figures would usually mean higher profit margins; however, the culprit, he said, is the high material prices, which eat into profit margins no matter how much work contractors secure.
Still, the attitude is more optimistic, especially compared to the previous economic webinars after Q2 and Q3 in 2021.
And looking ahead to 2022, Basu offered some predictions:
- The U.S. GDP will increase by 3-4%
- The bottom could fall out of inflation sometime next year
- Steel prices could decline later in 2022
- Construction will start to see projects generated by the infrastructure deal in the third and fourth quarters of 2022
- Roads, bridges, water system construction, school, healthcare, data centers and fulfillment centers are going to be key construction sectors to watch