How is the U.S. economy faring in the latter part of 2021, particularly with regard to the construction industry? What are the trends?
The pandemic is affecting the industry in several ways, perhaps most notably in the cost and availability of materials and labor.
AWCI contractor members from around the country can really give us the most useful view of the current situation and the most accurate predictions since they are on the ground and working hard every day to keep their companies solvent and thriving.
So, we asked some of them and, as usual, they gladly provided detailed information, which is presented here.
Regional Economy
The first question asked for a general overview of the economy in their particular region of the country.
Garrett Wickham, president of ACP Acoustic Ceiling & Partition Co. in Michigan, says that in his region “the commercial construction industry is still very busy with many projects to carry us through at least mid-2022. But there are signs of the economy cooling off. For projects being planned now, owners have concerns about labor shortages and material pricing, and some are considering holding off.”
“The economy is solid in the Midwest,” says Dusty Dahmer, CEO of Dahmer Contracting in Missouri. “We have plenty to bid.”
In Missouri, Shawn Burnum, AWCI’s president and also vice president of operations at Performance Contracting, Inc., says the economy is steady. He adds, “There continues to be some government work like schools, airports, courthouses, jails and such; however, large medical institutions, which can represent substantial work in our markets, have slowed down for the most part. We are still seeing growth in data and distribution centers. I believe some owners are in a wait-and-see mode.”
In Texas, Hal Waldrop, senior estimator for Marek, notes: “All contractors are struggling at below overhead margins. With labor hard to find, payroll is up 5% over 2020. Owners are slow to start new contracts. There is a lot of work in the pipeline.”
“Florida’s economy has been very strong,” reports Gary Dillman, CEO of Baylor Construction, Inc. in Florida. “However, as in all parts of the country, inflation is high, and the housing market is hyper inflated.”
From the region that includes Northwestern Iowa, Southeastern South Dakota and Northeastern Nebraska, Jerry Reicks Jr., president and CEO of JARCO Builders, Ltd. in Iowa, notes: “Public works projects have been slowing down in the bid process. Schools, retrofit and new, have been a huge part of our market this year, though we have not seen any bidding in the last few weeks. Commercial remodel to mall stores is steady as those that became empty in the last year are finding new life. The fast-food industry continues to update their chain stores. We have seen a major decline in multifamily housing in this market but no end in sight for a robust housing market. Right now we have a record backlog and are reluctantly declining to bid work we normally would bid on.”
Dave DeHorn, chief estimator at Brady Company/Los Angeles, Inc., reports, “In the Los Angeles area, our economy seems to be trending upward generally. Housing sales have potentially hit the high mark and seem to be holding level (a seller’s market for now). Restaurants, offices and smaller businesses seems to be struggling to find and keep a steady labor force. This may be due to the fact that the cost of living in Southern California exceeds the minimum wage or lower wage earner’s requirements, and people are leaving California for more economical places to live.”
From New Mexico, Pat Arrington, principal of Commercial Enterprises, Inc., notes, “Up to now, the economy has been good. But the owners are starting to pull back on projects due to overruns in material cost.”
“Here in Hawaii, the overall economy is slow, but construction is booming,” says Michael Mazzone, president of Statewide General Contracting & Construction.
And Richard Wagner, principal of Richard Wagner Enterprises, Inc. in North Carolina, just has one word for the economy in his neck of the woods: “Awesome!”
Where Is It All Heading?
We then asked about regional economic trends.
In Michigan, says Wickham, “Our industry is still growing. The demand exploded after COVID-19, and everyone is still trying to catch up. Material prices will continue to rise until this current demand drops. We still have a shortage of workers, so we end up hiring people who are not as experienced or productive as we would like, with adverse effects on the bottom line.”
Dillman says, “Material prices are high with long lead times. Other than the impacts of COVID-19 slowing things down, profits are holding.”
“In the Midwest, we remain steady and predictable and move up or down in less dramatic ways than the coastal regions,” says Burnum. “There continue to be reasons to invest for owners, with low interest rates and strong investment capital; however, the cost of construction has increased with material pricing and labor shortages. This may mean some developers have projects that no longer ‘pencil.’ But for those that do, it may be a good time to make a move.”
Reicks reports from Iowa, “Manpower continues to be our biggest obstacle to growth. Our margins on paper are the best we have seen, but the material prices and delays in bringing projects in due to the other trades not being able to procure their material are chipping away. The banks are flush with money, so refinancing and re-upping credit lines are not a problem.”
“The economic trend for construction in the Los Angeles area is public works and/or bond measure funds,” says DeHorn. “We are seeing a surge in LA Uniform School District projects, community college district projects, as well as higher education projects out for bidding. The private sector seems to be somewhat silent. With public works and bond measure funds available, the bidding market tends to lead to lower profit margins as the number of bidders in each trade category increases. The payroll side of our business is the least volatile over time because we know what the increases will be. Materials, on the other hand, have been increasing at unprecedented rates since January 2021.”
In Northern California, Adam Barbee, senior estimator/project manager at Daley’s Drywall, cautions, “With the market and the escalations that have occurred, you must be very careful with your estimating and your bids. Quotes from vendors need to be obtained for every single bid, otherwise there is too much risk. Unfortunately, this affects how we approach our bids, so in turn we must be strategic with our payroll, materials, overhead and profit margins to give our clients the best overall competitive value.”
Mazzone notes, “We had an increase in 2020 over 2019. Material has increased 100+%. We are holding our margins, but for projects bid in 2019 we are under water.”
What Exactly Is Happening with the Cost of Materials?
In Michigan, Wickham says, “Lumber has leveled out and, in most cases, has come down a little. Steel, gypsum and acoustic materials are still on the rise. We are expecting a 10-20% further increase in the fourth quarter of 2021.”
Burnum reports, “Material availability has become more predictable. Lead times for commodity products like metal studs, insulation and drywall are more manageable than in recent months. We are still paying premium prices, but those seem to have leveled off for the most part. We are seeing increases on some products, but not as dramatic as in previous months. Specialty products still have significant lead times and must be managed through the construction process.”
“We’re seeing lumber drop 15% and are hoping commercial material supplies and pricing fall back in line by mid-2022,” says Waldrop in Texas.
Likewise in Florida, Dillman notes, “Lumber prices have been coming down. They need to keep dropping.”
Reicks describes the materials situation in Iowa: “If you were unfortunate to get a project on Dec. 1 of last year and you placed your order for steel today without the limited price protection that we currently have, you would be paying 259% more for that steel. Increases are continuing and will continue for the balance of this year it appears.”
DeHorn in Southern California notes, “We have seen materials increase at unprecedented rates. Lumber prices seemed to start it off early in the year, and plywood prices are increasing every month. We have seen increases every month since January 2021 on metal products (steel studs, metal trims and metal lath). Some months have seen double-digit increases. We have also seen lead times on steel products go from four or five days to eight to 12 weeks from placement of the order. We have encountered three price increases in drywall this year. Taping and plaster products are also on the rise.”
Arrington outlines the materials situation in New Mexico: “Lumber is going back to 2018 prices quickly. The raw material is not affected as much as steel. We are told that the supply of dimension lumber will catch up with demand soon.”
“Lumber doubled in cost and is now slowly coming down,” says Mazzone in Hawaii. “Steel, drywall and acoustical products have all increased 10% to 15% each month since the 2020 election. Fiberglass insulation is almost impossible to purchase.”
“Up, up and away!” is Wagner’s description of the materials pricing situation in North Carolina. “Everything is more expensive, from metal to wood to fasteners!”
Barbee in California says, “All material in general has skyrocketed to record levels. Metal and gyp have risen continuously in cost. Wood materials have soared as well but have stabilized a bit in comparison.”
Predictions on Pricing for the Coming Year
“I believe prices are going to continue to rise through the second quarter of 2022,” says Wickham. “With housing starting to slow and commercial projects leveling off by then, the demand will decrease and prices will start to drop after that.”
Dahmer in Missouri, says, “I don’t see steel pricing going down any time soon as most raw materials are allocated to the e-commerce segment.”
Dillman believes pricing will hold steady in Florida.
In Iowa, says Reicks, “I expect these increases will continue into next year. I do not think they will be as dramatic as 2021. Barring new natural or unnatural disasters, we will see manufacturing increase to ease our shortages.”
DeHorn in Southern California predicts, “We see a steady trend on pricing through the end of the second quarter in 2022. They must come down somewhat or else there will be no construction due to the high costs.”
In Northern California, Barbee predicts prices will level out and even drop.
Arrington in New Mexico says, “We have been told by steel stud producers that the prices will continue to rise until the second quarter of 2022 and then level out and drop slightly but not close to what they were before Coronavirus.”
Mazzone in Hawaii is hoping prices have plateaued, and Wagner cautions, “Choose your projects wisely! We will continue to see rising costs until we hit the tipping point and then crash again.”
Final Thoughts on the Economy?
“The positive is that at least there is plenty of work,” says Dahmer.
Arrington is optimistic: “The economy in New Mexico is robust now,” he says, listing an array of advantages in the state.
“The one bright spot of 2020 shutdown was many hotels did remodel projects,” says Mazzone.
Wagner notes, “In North Carolina, we are lucky to still be riding the economic resurgence from past confidence in economic growth. Growth is about outlook and business policies!”
“Even with the higher escalations, we’re staying busy with work,” says Barbee. “We need to continue to count our blessings.”
David C Phillips, a freelance writer and photographer, is an original founding partner at Words & Images.
