New Data Shows Divide Between Industry Sector Recoveries

Published on May 14, 2021 by Nate Bortz

A recent study released by Dodge Data & Analytics, a provider of commercial construction project data, market forecasting & analytics, is causing some cautious optimism for near future industry performance. But other construction organizations are saying “we’re not out of the woods yet.”

There are many theories as to why industry confidence is rising despite current challenges. If you want “the full picture”, read the entire article below. Or, if you’re busy and just want “the gist,” check out this summary. 

Lunch Break Summary

• The Dodge Momentum Index reached a new high in April – signaling strong confidence in the building sector (mostly commercial/industrial) over the next few years.
  
  
• The study says the 8.6% gain in April was “due to a large increase in institutional buildings entering the planning stage while commercial planning eased by less than one percent.”
  

• However, labor shortages and rising material costs are still a major issue, deflating market confidence for some organizations like the Association of General Contractors (AGC).
  
  
• Dodge Momentum attributes the confidence to economic recovery and the country slowly going “back to normal,” while AGC argues tariffs on materials are keeping prices high, and generous unemployment policies are making labor hard to find.
  
  
• Federal and State government officials seem interested in making sure more people move off of unemployment and get back to work – which may help solve the labor shortage problem.

The Data Spurring Cautious Optimism

Last week, the Dodge Momentum Index posted an 8.6% gain in April, climbing to a record high 162.4 (2000=100) after five consecutive months of increase.  

According to Dodge Data & Analytics, the Momentum Index is a “monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year.”

“Since hitting a low in January 2021, institutional planning has risen to levels not seen in over 10 years driven by healthcare, labs, and education projects, said Richard Branch, Dodge’s chief economist, in an email to Construction Dive.” 

Construction Dive theorizes that projected growth in the institutional sector seems to be driven by long-term optimism about the country’s overall progress against COVID-19, despite the current hurdles that threaten to slow construction’s emerging recovery.

“The recent influx of fiscal stimulus from the American Rescue Plan in March, combined with a more optimistic outlook for COVID-19 infections has likely provided more clarity and moved these [industrial] projects forward in the planning timeline,” Branch said.

So what does that mean for you and your work right now? Unfortunately, not too much. Right in the Momentum Index report, Dodge Data & Analytics says April’s data shows a developing recovery underway in institutional construction, but given the average length of time between planning and project start, “this rise will likely not impact construction starts until late 2021 or early 2022.”

The Work Ahead

While industry forecasts are looking pretty good (for the industrial sector) over the next few years, associations like ACG argue that there is still a lot of work to be done to ensure a recovery across all sections of the construction industry.

In a recent data report of their own, ACG found that construction employment remained unchanged from March to April, despite a surge in demand for residential projects. Ken Simonson, ACG’s chief economist said “the fact that employment has stalled…suggests that contractors can’t get either the materials or the workers they need.”

ACG suggests the main factors creating this “expensive materials/no labor” issue lies behind current government policies. 

“Ironically, the latest coronavirus relief bill may actually be holding back economic growth by keeping people away from work at a time when demand is rebounding,” said Stephen E. Sandherr, ACG’s chief executive officer. “Federal officials need to look at ways to encourage people to return to work, end damaging tariffs on materials like steel and lumber, and act to ease shipping delays and backlogs.”

While the reasons for rising material prices are rather complicated, it seems that federal and state governments are working to ensure those who can get back to work will do so. 

Earlier this week, President Biden said “we’re going to make it clear to anyone collecting unemployment who is offered a suitable job they must take the job or lose their unemployment benefits.”

And in Montana, Governor Greg Gianforte replaced the $1,200 COVID-19 emergency unemployment benefit with a $1,200 bonus for any unemployed person who returns to work.

Have you been struggling to find good labor for your projects? Or are massive material price spikes getting in the way of making progress? As always, we would love to hear from you. Send us your stories to blog@onlinecti.com for a chance to be featured in a future blog.