Construction Industry Needs Less Tariffs & More Infrastructure Funding
by The Associated General Contractors of America
One year after the pandemic struck, construction firms are experiencing soaring materials costs, widespread supply-chain problems, and continuing project deferrals and cancellations, according to a new survey released by the Associated General Contractors of America. Association officials urged Congress and the Biden administration to take steps to eliminate tariffs on key materials, address shipping backups, and boost funding for new infrastructure to help the industry recovery.
“The survey results make it clear that the construction industry faces a variety of challenges that threaten to leave many firms and workers behind, even as some parts of the economy are recovering or even thriving,” said Ken Simonson, the association’s chief economist. “The pandemic has left the supply chain for a range of key construction components in tatters, and undermined demand for a host of private-sector projects.” Simonson noted that an overwhelming 93% of the survey’s respondents report the pandemic has driven up their costs. Four out of five are spending more on personal protective equipment, sanitizers, and other health-related expenses. More than half say that projects are taking longer than previously.
Costs and delayed deliveries of materials, parts, and supplies are vexing many contractors. Nearly 85% report those costs have increased over the past year. In addition, nearly 3/4 of the firms are currently experiencing project delays and disruptions, mainly due to shortages of materials, equipment, or parts. Nine out of ten firms that are incurring such delays cite backlogs and shutdowns at domestic producers, such as factories, mills, and fabricators. Half of the firms also blame backlogs or shutdowns at foreign producers.
More than 3/4 of the firms report having projects canceled or postponed in the past year, including more than one out of five with a 2021 project that has been canceled or postponed. Meanwhile, only 1/5 of respondents say they have won new projects or add-ons to existing projects as a result of the pandemic.
In a sign that the pandemic has had very different effects on construction firms, about 1/3 of firms say business matches or exceeds year-ago levels, while another 1/3 say it will take more than six months to reach that mark, and 1/5 say they don’t know. Respondents in the Northeast are the most pessimistic about the outlook, followed by firms in the South. Firms from the Midwest are split along the same lines as the full survey, while respondents in the West are more optimistic, on balance. Despite these differences in experience to date and the near-term outlook, contractors from all regions, project types, and firm sizes are almost equally bullish about their hiring expectations over the next 12 months. Across nearly all subgroups, roughly three out of five respondents expect to add employees over the coming 12 months. Only 10%-15% of firms in any category expect to reduce their headcount.
“Contractors need Washington officials to cut tariffs and address the shipping and supply chain problems that are driving costs and contributing to project delays,” said Brian Turmail, the association’s spokesman. “They also expect President Biden will keep his word and get significant new infrastructure investments enacted as quickly as possible.”
Construction employment climbed by 110,000 in March as the industry recovered from severe winter weather that pushed employment down by 56,000 in February. Association officials said they were encouraged by the recent job gains and the potential for new infrastructure investments. But they cautioned that rising prices and erratic delivery schedules for key construction materials and continued project cancellations could undermine the sector’s recovery. “The rebound in March is certainly good news, but contractors face growing challenges that imperil further growth in nonresidential employment,” said Simonson. “In fact, industry job gains in the first quarter of 2021 as a whole have slowed sharply from the second half of 2020.”
Construction employment in March totaled 7,466,000, which was 182,000 employees or 2.4% below the most recent peak in February 2020. Over the past three months, the industry added 66,000 jobs, an average of 22,000 per month. In contrast, construction employment increased more than three times as fast from June to December last year, with an average gain of 76,000 jobs per month, the economist noted. Nonresidential construction is experiencing headwinds from postponed and canceled projects, steep increases in materials costs, and lengthening delivery times. Simonson pointed out that the nonresidential sector, comprising nonresidential building, specialty trades, and heavy and civil engineering contractors, remains 231,000 jobs or 4.9% shy of the pre-pandemic peak set in February 2020, whereas employment among residential building and specialty trade contractors is 49,000 or 1.6% above the February level.
“It will take more than nice weather for the construction industry to keep adding jobs this year,” said Stephen E. Sandherr, the association’s chief executive officer. “Investing in infrastructure, avoiding needless new regulations and counterproductive tax hikes, and fixing the supply chain will help the industry create many more high-paying construction career opportunities over the coming months.”