Participants in the SFIA Forum webinar, “The State of Steel Framing — And What You Can Do About It,” are positive about the construction economy and the forecast for 2022. Photo courtesy of South Valley Prefab.
Ken Simonson, chief economist for the Associated General Contractors of America, is optimistic, but also realistic about the 2022 construction economy.
In November 2021, he provided insights in a webinar entitled, “2022 Economic Forecast,” sponsored by the Foundation of the Wall and Ceiling Industry, the educational and research arm of the Association of the Wall and Ceiling Industry.
Simonson spoke about construction employment, spending and supply-chain issues. Here are some highlights. Also, a recording of the webinar is available below.
Bad News: Construction Employment
The Bureau of Labor Statistics data shows that construction employment “fell off a cliff from February to April last year,” Simonson said. Eventually, contractors resumed working and, using Paycheck Protection Program loans (which ended on May 31, 2021), brought back many furloughed workers.
After June 2020, however, residential construction employment kept rising while non-residential construction employment stalled, said Simonson. He believes the labor shortage will continue to delay project timelines, citing a recent AGC survey on workforce experience and expectations:
- 89% of AGC member companies are looking to fill hourly craft positions report having a hard time doing so
- 86% are trying to fill salaried positions and report having difficulty filling those openings
- 88% percent of firms are experiencing project delays; 61% are encountering project delays specifically due to shortages of workers
Due to low vaccination rates among construction workers, worker shortages won’t get better soon, Simonson said. “It’ll be harder for construction firms to come up with a fully healthy, qualified workforce,” he said.
Also, Simonson cited recent data that shows construction’s lead in average hourly earnings narrowing in comparison to the pay in other industries. So, attracting new employees to construction jobs will continue to be a challenge.
Good News: Construction Spending
Simonson cited a recent construction-related producer price index from the Bureau of Labor Statistics. The index — which factors in lumberyard, wholesaling, trucking and other services that construction firms buy — has risen 48% from a low point in April 2020, Simonson said. A different index — the Producer Price Index by Commodity: New Non-Residential Building Construction, which indexes construction bid prices — was flat most of this year, but recently has started rising.
The trending of the two indices means the gap between construction inputs and project bids “remains enormous,” Simonson said.
Simonson shared, however, some good economic news.
- The Architecture Billings Index from the American Institute of Architects continues to read above 50. The ABI is an economic indicator for nonresidential construction activity, with a lead time of approximately 9–12 months
- The Dodge Momentum Index from Dodge Data & Analytics shows that commercial construction projects in initial planning stages remain at “a record high,” Simonson said
Growth in Certain Construction Sectors
Simonson believes the economic recovery will continue.
“We’ve had quite a pause in the third quarter,” Simonson said. “Real GDP (inflation adjusted gross domestic product for the value of all goods and services produced in this country, net of imports) went up by 2% at a seasonally adjusted annual rate. And that was down from 6.7% growth in the second quarter and about the same in the first quarter.”
The Q3 slow down occurred due to the widespread supply chain shortages, Simonson said. But, Q4 and next year should see growth.
“We have some pent up demand, which will start showing up perhaps later this quarter, certainly into 2022,” Simonson said. “The economic recovery will gather some speed.”
Construction Growth Sectors
Simonson identified the following growth sectors in construction:
- Demand for warehouses, especially “last mile or final-step facilities” that involve conversions of abandoned big-box stores and mall anchor stores
- Fulfillment centers, such as those run by Amazon, Costco and Target
- A huge demand for data centers
- Pickup in demand for manufacturing
- Demand for restaurants
Simonson said the office construction market is limited to remodeling right now which, he said, “is not so bad for the wall and ceiling industry.”
AGC’s Ken SImonson says 86% of AGC member contractors are trying to fill salaried positions. Credit: AGC and Robby Brown + Sundt Construction.
Material Costs and Supply Chain Issues
A lot of webinar attendees asked when material prices and material shortages would get back to pre-pandemic levels. Simonson told attendees to expect shortages to continue.
“My own forecast would be to expect volatility,” Simonson said. “I’ve certainly been getting ‘Dear valued customer’ letters from our [AGC] members.”
Lumber prices increase
One webinar attendee asked whether lumber prices would ever get back to pre-pandemic levels. Simonson responded by noting that the PPI for lumber and plywood increased 3.2% from September to October.
“The futures price is kind of a signal to all of the market players,” Simonson said. “For me, the takeaway is to expect prices to continue to move — sometimes dramatically.”
He added: “There’s still a lot of pent up demand, because we basically underbuilt housing for almost a decade, and now we have a lot more people who have a lot more income, a lot more wealth from capital gains or from having an existing home. So, I do think we’ll still see a lot of single family and multifamily construction.”
In summary, Simonson said the U.S. economy is healthy.
“We are continuing to get growth in real GDP, huge demand for housing, for manufacturing facilities and for distribution facilities,” Simonson said. “I think that we will continue to see strong demand for many kinds of construction materials and also continuing price increases for projects that owners will be willing to accept, by and large.”
Ken Simonson
Ken Simonson is chief economist for the Associated General Contractors of America. He provides insight into the economy and what it implies for construction and related industries through frequent media interviews, presentations and the Data Digest weekly e-newsletter.
Simonson has more than 40 years of experience analyzing economic data. He is liaison to the Census Bureau’s Construction Data Modernization Working Group, a fellow and past president of the National Association for Business Economics and co-director of the Tax Economists Forum.
Simonson has a BA in economics from the University of Chicago, and an MA in economics from Northwestern University.
Additional Resources
- The Steel Framing Industry Reports Big Gains During the Pandemic
- 592,000 Hotel Rooms in the US Pipeline
- Veev’s Switch to Steel Framing Lowers Costs and Speeds Housing Construction
Article cited by BuildSteel.org