Persistent Workforce Shortages Challenge Commercial Construction Industry as Building Demands Continue to Grow
The Q1 2018 USG Corporation + U.S. Chamber of Commerce Commercial Construction Index, released last month, reveals nearly two-thirds of contractors are highly confident that demand for commercial construction in the U.S. will increase over the next year; however, continued concerns around labor shortages have put even greater pressure on the industry. To increase jobsite efficiency and improve labor productivity, increasingly more builders are turning to alternative construction solutions, like prefabrication and modularization.
The Q1 Index indicates contractors turn to innovations such as prefabricated and modular building materials to create more efficient job sites (89 percent), increase labor productivity (85 percent), drive cost savings (58 percent), and provide a competitive advantage in the marketplace (51 percent). In fact, 50 percent of contractors report their companies already use prefabricated and modular components and the number was even higher among general contractors (72 percent). Nearly two-thirds (63 percent) of contractors report at least moderate demand for these building materials.
Contractors in the Northeast (69 percent) reported the most frequent usage of prefabricated and modular components, compared to the South where only 24 percent indicate their companies are using these materials. Firms in the Northeast also expect to hire fewer workers—38 percent of contractors in the region expect to employ more staff in the next six months, compared with 57 percent in the South, 59 percent in the West, and 68 percent in the Midwest. Across all regions, concern over the cost of hiring skilled labor has remained consistent over the past year—nearly two-thirds (64 percent) of contractors expect these costs to increase in the next six months.
Despite labor concerns, contractor sentiment remained steady for the first quarter, as a result of strong revenue expectations and higher profit margins, with a composite score of 74.
The Index looks at the results of three leading indicators to gauge confidence in the commercial construction industry—backlog levels, new business opportunities and revenue forecasts—generating a composite index on a scale of 0 to 100 that serves as an indicator of health for the contractor segment on a quarterly basis. The Q1 2018 composite score was 74, holding steady from Q4 2017.
The Q1 2018 results from three key drivers:
- Backlog—On average, contractors currently hold 8.9 months of backlog, relatively close to the average ideal amount of 12.2 months, continuing the stability of the market, although there is room for growth. Down two points from Q4 2017, this represents 73 percent of ideal backlog levels.
- New Business—Nearly all (98 percent) contractors report high or moderate confidence in the demand for commercial construction. Year-over-year, the number of contractors who have high confidence in demand over the next 12 months jumped 11 percentage points (from 51 percent in Q1 2017 to 62 percent in Q1 2018).
- Revenues—Over half (54 percent) of contractors expect to see revenue gains in the next year. This percentage jumped seven points from last quarter (47 percent in Q4 2017).
The research was developed with Dodge Data & Analytics, the leading provider of insights and data for the construction industry, by surveying commercial and institutional contractors.