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It’s no secret that construction plays a vital role in the strength of our economy at both the state and national levels.

Construction contributes $11 billion to Missouri and nearly $800 billion to the U.S. economy as a whole, according to the Associated General Contractors of America (AGC).

But what can contractors expect for the remainder of 2018 and early 2019? Let’s take a look at some of the factors that are currently influencing the near-term outlook for the construction industry.

Overall Economic Strength

The U.S. GDP surged by 4.1% during the second quarter of 2018, on the strength of a 4% increase in consumer spending, which accounts for 70% of economic activity, and an impressive 13.3% growth in export goods.

A booming economy has contributed to historically low unemployment, which fell to 3.9% in July 2018, down from 4.0% in May and 4.3% in June 2017. Missouri recorded an unemployment rate of 3.5% for June according to the Missouri Economic Research & Information Center (MERIC), even lower than the national rate.

On the heels of a global expansion of 3.2% in 2017, growth is expected to continue through the end of 2018 and into early 2019, both at home and abroad.

Construction Industry Growth

Continued economic strength has contractors feeling optimistic about the near future. A recent survey by AGC of America revealed that 53% of U.S. contractors and 50% of Missouri contractors expect the dollar volume of projects they bid on to increase over the next year.

The international Engineering, Procurement and Construction Market (EPC) is expected to reach $7.4 trillion by the end of 2018, up 3.5% from 2017. In North America, that number is projected to hit $1.97 trillion by year’s end.

The United States is one of the world’s leading construction markets in 2018, along with India, China, Vietnam and Indonesia. New construction starts in the U.S. were up 8.5% year-to-year in the first half of 2018, and construction activity in the United States is expected to increase between 4 and 5% for the year as a whole.

The U.S. construction sector added 19,000 jobs in July 2018, and has added more than 300,000 for 2018 thus far. Construction jobs in Missouri increased by 200 from May to June 2018, but declined by 1,900, or about 1.5%, from June 2017, according to data published by the Missouri Economic Research & Information Center.

The AGC survey shows 88% of Missouri contractors expect to hire more employees in 2018, with 75% of U.S. contractors saying the same.

Individual Construction Sectors

The industry has experienced broad-based growth in 2018, with increases projected across a number of sectors:

  • Residential: 6%
  • Single family: 9%
  • Education and public buildings: 6%
  • Commercial: 2%
  • Office: 6%
  • Overall non-residential: 4%
  • Non-building: 4%
  • Roads and bridges: 6%

The potential for new federal spending on infrastructure adds the possibility of even more opportunity on the horizon. President Donald Trump has proposed more than $1 trillion for highways, airports, bridges and tunnels.

Rising Labor Costs

In addition to increased job opportunities, construction is one of the top 5 sectors for wage growth according to the Wall Street Journal, along with financial, utilities, leisure and hospitality, and retail trade.

Average weekly earnings for construction employees in June 2018 averaged $1,122.21, up from both May 2018 and June 2017.

While the prospect of higher wages may attract workers in pursuit of construction jobs, it also presents challenges for contractors who must balance the cost of labor against other expenses.

In Missouri and across the U.S., contractors are reporting higher labor costs over the past year:


 

Missouri       

United States

Increased base pay

65%

60%

Providing incentives or bonuses

42%

36%

Increasing contributions or employee benefits         

42%

24%

Source: AGC of America, 2018.


Tight Labor Supply

One factor driving the cost of labor for contractors is the challenge of finding enough qualified workers.

About 35% of Missouri contractors, and 50% nationwide, say they are struggling to fill both salaried and craft positions.

Just over half of Missouri and U.S. contractors expect to continue having difficulty attracting sufficient talent over the next 12 months.

Other Construction Costs

The Bureau of Labor Statistics reported that construction materials rose 0.8% month-to-month in June 2018, up 9.6% from June 2017. Nonresidential construction materials went up 0.9% for the month and 9.8% year-to-year.

Iron and steel have jumped by almost 14% over the past year, and softwood lumber has risen 23% in the same time frame.

According to analysis from Associated Builders & Contractors, rising materials costs could put pressure on the building industry and economy as a whole. Higher costs for new projects could translate into higher consumer prices and higher rental costs for residential renters and office tenants.

Cost increases for other individual construction materials are also projected for 2018:

  • Portland cement: 3-4%
  • Ready-mix concrete: 3-4%
  • Precast concrete: 1-2%
  • Lumber: 3-4%
  • Concrete block: 1-2%
  • Aggregates: 3-4%
  • Asphalt paving: 2-3%
  • Fabricated steel: 0-1%
  • Gypsum products: 6-7%
  • Flat glass: 2-3%

Changing Trade Policies

The U.S. has enacted tariffs of 25% on steel and 10% on aluminum from Canada, Mexico and the European Union, along with additional tariffs on $200 billion worth of Chinese imports.

Some observers fear that trade disputes could potentially lead to construction delays and further cost increases.

However, U.S. steel and aluminum producers report being “swamped” with new bidding opportunities from domestic and international customers since the tariffs went into effect, which could pave the way for new construction projects.

Another possible development on the trade front is renegotiation or elimination of the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico. This could put further upward pressure on construction, especially wood products, if new tariffs are placed on Canadian timber and lumber.

While the current economic environment favors continued growth in construction, contractors will continue to monitor factors putting upward pressure on labor and materials costs.

Are you looking for a convenient source for the products you need to get the job done right? Contact Mid-City Lumber to put our experienced staff to work for you.