Rising oil prices threaten construction projects
By Jenny LescohierMarch 08, 2022
Construction has recovered virtually all of the jobs lost during the early stages of the pandemic, adding 60,000 jobs on net just in February, however rapidly rising oil prices could cause disruptions to project delivery.
Dr. Anirban Basu, chief economist with Associated Builders and Contractors (ABC), said the U.S. economy is “charging into the post-pandemic world with significant momentum,” however there are many reasons for concern.
“Elevated oil prices are likely already doing damage to the economy, damage that is not yet apparent in key macroeconomic indicators,” he said. “Elevated oil and other prices are also driving the cost of delivering construction services higher, which could result in the postponement or cancellation of some projects.”
Promising to further price fluctuations is President Biden’s announcement on March 8 that the U.S. will ban all Russian oil imports, toughening the toll on Russia’s economy in retaliation for its invasion of Ukraine. He acknowledged it will come at a cost to Americans, particularly at the gas pump.
Good news for construction employment
According to ABC’s analysis of data from the U.S. Bureau of Labor Statistics, nonresidential construction employment increased by 29,400 positions in February, with all three subsectors experiencing growth. Overall, the sector is up 3.9% over the past 12 months.
The residential sector added 31,000 jobs in February and is up 4.5% since February 2021.
The construction unemployment rate fell to 6.7% in February, while unemployment across all industries declined to 3.8%, down from 4.0% in January.
Good news aside, Basu noted overall federal spending will be down sharply in 2022, despite stepped-up federal investment in infrastructure, “creating substantial fiscal drag.
“Inflation has been draining households of accumulated savings and could trigger rapid slowing in consumer outlays,” he said. “Interest rates are poised to rise as the Federal Reserve readies itself to deal more forcefully with what has turned out to be nontransitory inflation.”
Still, rapid workforce growth is fueling America’s economic momentum, with more people re-entering the workforce to take advantage of higher wages and to better contend with rapidly rising prices.
“Evidence indicates that contractors have had a somewhat easier time filling available positions recently,” said Basu. “There are also indications that supply chain issues have improved slightly, though the Ukraine/Russia war may create new issues on that front.”
He concluded, “With demand strong and the supply side of the economy in repair, 2022 is setting up to be a strong year for contractors. At some point, federal infrastructure dollars will begin to flow more freely, and that will help support additional contractor backlog, which declined to 8.0 months in ABC’s latest Construction Backlog Indicator report.”