Change is in the Air
Published: 13/7, 2018
Change is in the Air
You’ve no doubt heard the expression, “make hay while the sun shines.” What began centuries ago as a literal admonition for farmers to utilize favorable dry weather for hay-making tasks is now a reminder to those in any industry to make the most of a favorable situation.
And for the past several years, most contractors in the U.S. and elsewhere in the Americas have been doing just that. An economic expansion with superb staying power has created a steady stream of construction work across a variety of sectors. When one area shows signs of a pullback, another rises to take its place.
This has been particularly beneficial for contractors with the versatility to quickly direct resources from one type of work, say highway and utility infrastructure, to projects in multi-family housing or renovation.
But nothing lasts forever. Construction’s longtime sunny skies are increasingly dotted with clouds that may not bring a dooming deluge comparable to the 2008 recession, but could well present new challenges and compound others.
One issue should already be apparent to most PDa readers—the skilled labor shortage, a problem that has become more acute as supply falls further behind demand. Engineering News-Record magazine’s 20-city average price for skilled labor, released in early July 2018, is 2.3% higher than at the same time last year. That tracks with the Construction Labor Research Council’s projected 2.5% union labor shortage for 2018, up from last year’s predicted increase of 2.1%.
Many contractors have reportedly begun to offer signing bonuses to lure craft workers, along with free training to cultivate even the most rudimentary technical skills.
Low material prices, a boon to project owners’ budgets that helped lift construction out of the recession, are also a thing of the past. Along with increased demand, the imposition of 25% and 10% tariffs on imported steel and aluminum, respectively, will almost certainly make those materials more expensive.
Though many industry observers believe the U.S. has sufficient steelmaking capacity to compensate for overseas supply losses, even minor pressure on supply chains could result in extended delivery schedules, complicating project logistics and adding an unwelcome measure of instability and uncertainty to contractors who operating on the figurative edge financially. And if you’ve fueled your vehicles lately, you’ve likely noticed an uptick in gas prices.
The good news is that a downturn is no imminent. Dodge Data & Analytics shows construction starts are holding steady compared with last year, with a rise as of much as 3% by the end of 2018.
After that, the picture gets hazy. Next year should remain good, industry observers say. But once the calendar flips to 2020, the likelihood of a slowdown increases, though when and by how much is anyone’s guess.
Planning for that not-so-distant future may not be easy, particularly when dealing with backlogs or trying to build them. And as has been the case in the past, some markets or geographic may fare better than others, even prospering amid sharp downturns elsewhere.
So what’s a contractor to do? By all means, keep making that proverbial hay. But also keep an eye on the skies and get a feel for which way the wind is blowing.
And remember that other familiar adage—anything can happen, and usually does.