The new Trump Administration’s aggressive policies, particularly on international trade and immigration reform, could, if executed as planned, “greatly affect” how America’s construction industry does business this year and beyond.
In its Q4 2016 Construction Outlook, which it released earlier this week, JLL also continued to see construction labor as a “pain point” for the industry that will cause wages to rise and impact project timelines and budgets. And materials costs, which for the most part stabilized in the latter months of 2016, should hold steady if, as expected, construction activity slows this year.
Twenty-sixteen was a banner year for construction spending. Led by the hotel and office sectors, spending increased over the previous year by 4.5% to $1.2 trillion. That rate of growth was nearly triple the GDP inflation rate.
Nationally, the construction and contractor backlog in Q4 2016 stood at 8.7 months of future work across all sectors, up 2.2 percent from the fourth quarter 2015 and tracking closely with national trends. The Midwest in particular enjoyed sizable year-over-year growth that quarter, while work in the South remains steady. The Northeast and West regions continued to slip, each well below 2015 levels.
Not surprisingly, construction costs are rising faster in metros where construction activity has been robust, but also where labor is in shorter supply. Image: JLL Research
Building costs rose nationally by a modest 2.7%, with nearly half of that increase occurring in the fourth quarter, spurred by strong residential construction that drove demand, and uncertainly surrounding the effects of the Trump presidency.
JLL doesn’t expect the manifestations of policy decisions coming out of Washington to intervene on the construction industry until later this year. But JLL’s forecast strikes a cautionary pose about the prospects of “voided international trade deals and new import tariffs [that] could drive up materials costs faster.”
And at a time when construction unemployment continues to fall—last week, AGC America reported that from January 2016 to January 2017 construction employment rose in 39 states and in 216 of 358 metro areas—immigration reform “could shrink the skilled labor supply and spur further wage increases,” says JLL’s report. Large-scale infrastructure projects will create a premium on materials and workforce in specific markets such as Oakland and San Francisco, Chicago, and New York.
Inflation in materials costs is harder to gauge when trade agreements are in flux. The largest price swings in 4Q 2016 were seen on the cement and lumber fronts: cement costs were down 4.7% compared to the same time last year, while lumber was priced 9%-plus higher. Steel, on the other hand, maintained negligible price changes, not even breaking one-tenth of a percentage point over third-quarter prices.
One barometer worth keeping an eye on is the IHS Markit PEG Engineering and Construction Cost Index, which tracks procurement activity among engineering and construction firms. In March, that Index registered its fifth consecutive month of rising prices.
Eight of 12 materials/equipment categories tracked showed rising prices in March. And the six-month expectation index stayed positive, although materials and equipment prices are projected to rise at a slower pace than subcontractor labor.
Related Stories
Market Data | Apr 4, 2023
Nonresidential construction spending up 0.4% in February 2023
National nonresidential construction spending increased 0.4% in February, according to an Associated Builders and Contractors analysis of data published by the U.S. Census Bureau. On a seasonally adjusted annualized basis, nonresidential spending totaled $982.2 billion for the month, up 16.8% from the previous year.
Multifamily Housing | Mar 24, 2023
Average size of new apartments dropped sharply in 2022
The average size of new apartments in 2022 dropped sharply in 2022, as tracked by RentCafe. Across the U.S., the average new apartment size was 887 sf, down 30 sf from 2021, which was the largest year-over-year decrease.
Multifamily Housing | Mar 14, 2023
Multifamily housing rent rates remain flat in February 2023
Multifamily housing asking rents remained the same for a second straight month in February 2023, at a national average rate of $1,702, according to the new National Multifamily Report from Yardi Matrix. As the economy continues to adjust in the post-pandemic period, year-over-year growth continued its ongoing decline.
Contractors | Mar 14, 2023
The average U.S. contractor has 9.2 months worth of construction work in the pipeline, as of February 2023
Associated Builders and Contractors reported today that its Construction Backlog Indicator increased to 9.2 months in February, according to an ABC member survey conducted Feb. 20 to March 6. The reading is 1.2 months higher than in February 2022.
Industry Research | Mar 9, 2023
Construction labor gap worsens amid more funding for new infrastructure, commercial projects
The U.S. construction industry needs to attract an estimated 546,000 additional workers on top of the normal pace of hiring in 2023 to meet demand for labor, according to a model developed by Associated Builders and Contractors. The construction industry averaged more than 390,000 job openings per month in 2022.
Market Data | Mar 7, 2023
AEC employees are staying with firms that invest in their brand
Hinge Marketing’s latest survey explores workers’ reasons for leaving, and offers strategies to keep them in the fold.
Multifamily Housing | Feb 21, 2023
Multifamily housing investors favoring properties in the Sun Belt
Multifamily housing investors are gravitating toward Sun Belt markets with strong job and population growth, according to new research from Yardi Matrix. Despite a sharp second-half slowdown, last year’s nationwide $187 billion transaction volume was the second-highest annual total ever.
Contractors | Feb 14, 2023
The average U.S. contractor has nine months worth of construction work in the pipeline
Associated Builders and Contractors reports today that its Construction Backlog Indicator declined 0.2 months to 9.0 in January, according to an ABC member survey conducted Jan. 20 to Feb. 3. The reading is 1.0 month higher than in January 2022.
Office Buildings | Feb 9, 2023
Post-Covid Manhattan office market rebound gaining momentum
Office workers in Manhattan continue to return to their workplaces in sufficient numbers for many of their employers to maintain or expand their footprint in the city, according to a survey of more than 140 major Manhattan office employers conducted in January by The Partnership for New York City.
Giants 400 | Feb 9, 2023
New Giants 400 download: Get the complete at-a-glance 2022 Giants 400 rankings in Excel
See how your architecture, engineering, or construction firm stacks up against the nation's AEC Giants. For more than 45 years, the editors of Building Design+Construction have surveyed the largest AEC firms in the U.S./Canada to create the annual Giants 400 report. This year, a record 519 firms participated in the Giants 400 report. The final report includes 137 rankings across 25 building sectors and specialty categories.