Construction Economic News

In July 2022, the economics team at ConstructConnect reported that the CME Group, the holding company to the Chicago Mercantile Exchange, Chicago Board of Trade, and New York Mercantile Exchange, was soon to bring a new lumber contract product to market. This new product would enable the trading of lumber options in truckload, rather than railcar, quantities.

Total U.S. construction labor supply has grown by 5% since the end of 2019. Despite this growth, the supply of willing laborers is well below the level demanded. Based on data released in the fourth quarter of 2022, there remain nearly 400,000 unfilled construction industry positions. This severe shortage has worsened over the last two years despite some of the largest annual pay increases—but also wage-eroding inflation—for construction workers in decades. The overall labor challenge (shortage) facing construction is not expected to significantly change at the broadest level. However, there are several important intra-industry trends that will force industry leaders to take very different labor strategy tactics in the coming one to two years.

November’s inflation data reported on December 13, 2022, came in below expectations. The basket of goods and services, which are used to broadly track prices, rose 7.1% in the year period ending November. This latest year-on-year rate change is the lowest since prices first began their rapid ascent in early 2021. Furthermore, it marks the fifth consecutive decline in annualized inflation rate readings since June 2022’s decades-high reading of 9.06%.

Only in recent months has a consensus developed that the global economy is likely to contract in 2023. In the Wall Street Journal’s latest survey of 65 highly recognized economists conducted during October, the average nominal U.S. GDP outlook on a seasonally adjusted annualized basis was for declining GDP rates in both the first and second quarters of 2023 before returning to less than 1% growth in the third quarter.

As the war in Ukraine quickly approaches the one-year mark, discussions of how the world will coordinate a long-term strategy that economically targets Russia while minimizing the collateral damage done to other economies have only grown.

Wages in the construction and manufacturing sectors continued to push higher early in the fourth quarter of 2022. The average hourly compensation for all employees in the construction sector ended October 2022 at $35.27, an increase of 13.2% from the end of 2019. Similarly, manufacturing wages have increased from $28.16 at the end of 2019 to $31.23 in October, notching a smaller gain of 10.9%.

ConstructConnect’s Expansion Index is a monthly measure of the nominal dollar value of planned construction projects compared to the same month one year ago. The Index geographically covers the United States, Canada, and their respective states and metropolitan statistical areas. November’s release, which reports on data collected in the prior month, extended several of the industry trends that ConstructConnect has previously identified.

In mid-2022, overall inflation by some measures was approaching 9%, a 40-year high following more than a decade of historically low inflation rates. However, for manufacturers, distributors, and others purchasing raw materials, 9% annual inflation pales in comparison to the kinds of price swings these firms experienced for their raw materials beginning in mid-2020. For construction firms and product manufacturers, the last two years have been spent trying to raise output prices fast enough and high enough to cover rapidly increasing input costs.

The relationship between manufacturers, wholesalers, and end customers has been well documented over the last many decades. To speed the delivery of products to end users, wholesalers preemptively store finished products for quick sale. At the same time, wholesalers can decide whether or not to order replacement inventory from manufacturers which results in further orders to their suppliers. This movement of orders and materials takes time which can be a risk for both manufacturers and wholesalers when economic market conditions rapidly change.

ConstructConnect’s Expansion Index is a monthly measure of the dollar value of planned or ‘contemplated construction projects compared to the same month one year ago. The Index geographically covers Canada, the United States, and their respective metropolitan statistical areas.