The coronavirus pandemic upended the world and the construction industry, and two years after the onset, we are still dealing with it. For the construction industry, that means supply chain issues, increased material and labor costs and a continued labor shortage.
The pandemic holds on but the industry is emerging and battling new challenges
Our contributors this year address those problems, provide insight to what 2022 could hold for you and your company as well as provide solutions you can implement to face the unique challenges you’re facing.
Return to a New Normal
As the economy improves, unique drivers create different demands in construction
By Alex Carrick, Chief Economist, ConstructConnect
To tackle a +6.8% year-over-year consumer price index (CPI) inflation rate, the Federal Reserve has stated it will be pursuing QT rather than QE in the year ahead—quantitative tightening rather than easing—and that there may be as many as three upward adjustments to interest rates. On the residential construction side, the expectation of higher interest rates may counterintuitively speed up groundbreakings for a while as prospective new homeowners try to beat the financing cost increases.
Engineering construction has been solid and flat during the pandemic to date. It’s about to receive quite a boost, however, from the recently enacted infrastructure spending bill.
In a Hard Market, Property and Casualty Insurance Premiums Rise
After years of paying out more than they take in, insurance companies are making tough choices
Rose Grant, AIA, CPCU
Insurers measure the health of the industry by the combined ratio, basically their cost of doing business (losses and expenses) divided by the premiums they collect. Any number under 100 indicates a profit; over 100 connotes a loss. The Insurance Information Institute (III) estimates that the combined ratio for commercial lines insurers in 2021 will be 109%. For every dollar they took in they paid out $1.09.
The National Association of Insurance Commissioners (NAIC) reported that Commercial Multi-peril (coverage for wind, fire, etc.) has been “unprofitable for five consecutive years and eight out of the last 10 years.” “An industry that pays out more than what they take in, year after year, faces tough choices, choices that affect contractors, manufacturers and building owners.” To return to profitability, insurers have a number of tools at their disposal: raising rates, increasing deductibles or discontinuing coverage.
Solar and Metal Roofing
The solar market is growing as prices decline and a metal roof provides the ideal platform
By Rob Haddock, CEO and Founder of S-5!
Like all sectors of the economy, our industry has seen raw material price increases and supply chain backlogs like never before―mostly due to the fallout from the pandemic. Steel companies had shut down production and inventories became decimated. That’s raw material at its source. Other mills beyond steel, such as aluminum, stainless, lumber and consumer goods had shutdowns as well—both domestic and foreign.
The clean energy sector is not much different. However, if the president’s Build Back Better Act passes, it should offset price increases and likely increase the level of support for solar photovoltaics (PV) and other renewables, extending and possibly increasing investment tax credits (ITC) to 2019 levels.
2022 Spoiler Alert: Inflation Ain’t Going Away
Inflation will continue but it should be better in 2022
By Kathryn Thompson, CEO, Thompson Research Group
As 2020 came to a close, Thompson Research Group (TRG) in our 2021 Investing Themes and Outlook report predicted that inflation would be a key driving force in 2021. Early in 2021, we had economists pat us on our heads, advising that we stick to our knitting and leave the big thinking to economists.
By mid-2021, those very economists were shouting from the mountain tops about the perils of inflation. Overall, we have all seen significant inflation throughout 2021 on a wide range of consumer and industrial products, from aluminum to RVs. The question, however, remains how much is driven by supply chain issues versus an increase in fundamental demand versus other external forces. Ultimately, it’s a combination of a variety of factors.
Contractors Expect a Busy but Challenging Year
Managing costs and scheduling among biggest challenges in 2022
By Ken Simonson, Chief Economist, Associated General Contractors of America
Contractors anticipate having plenty of projects available to bid on in 2022. But finding the workers and materials to execute the projects is expected to present multiple challenges.
Those expectations showed up clearly in the 2022 Construction Hiring and Business Outlook survey the Associated General Contractors of America, supported by Sage, conducted in late 2021 and released on January 12. More than 1,000 AGC members—who do every type of construction other than single-family—answered the questions.
Respondents were particularly upbeat about the outlook for three types of infrastructure projects: highway and bridge, water and sewer, and transportation facilities such as airport, transit and rail facilities. That optimism may be partly a result of the enactment last November of the $1.2 trillion Infrastructure Investment and Jobs Act, which should greatly boost federal funding over the next several years for a wide range of public works projects.
Tackling the Issue of Workforce Demand
The industry needs to work together to build awareness of construction careers
By Boyd Worsham, LEED AP, CEO and president of the National Center for Construction Education & Research
Workforce fluctuations are true for any industry. The construction industry is no exception with its ever-changing disposition. With the occurrences of the last few years being unparalleled, this statement rings true even more so. The balance of the construction workforce demand is currently up in the air with both positive and negative trajectories.
According to the Associated General Contractors’ (AGC) data analysis, 31,000 jobs were created between October and November in all construction sectors in 2021. This is most likely due to the bounce back from the declines that were caused by the pandemic as well as progression on upcoming federal infrastructure investments.
Industry Challenges
The construction industry works together to meet the unique difficulties of this time
By Bob Zabcik, PE, LEED AP, Technical Director, Metal Construction Association
Let me just come out and say it: last year was a wild and crazy ride. In some ways, good; in others, bad. Writing this, I think of advice given to me by my father. Don’t define events in life as good or bad. Instead, define them as lessons learned and evolutions to make. That was great advice and I’ll try to follow it here.
One of my biggest concerns for the industry remains talent acquisition and retention. It’s no secret that the construction industry has struggled for some time to attract new young talent. We are moving backwards compared to hotter fields such as tech. While headway is being made to reverse this trend, it is a long-term problem and won’t be solved overnight. Our younger generation is made of knowledge-seeking people who are used to having information at their fingertips 24/7 and keeping them on a need-to-know basis is a great way to lose them. Training will be a key part of any retention strategy, and the Metal Construction Association (MCA) is well-positioned to help our members with ongoing education efforts.