Building Materials, Labor Shortages Hold Back Construction
Construction spending, while up year over year, continues to be hampered by building materials shortages and difficulties finding labor, the Census Bureau reported Monday.
Construction spending in September came in at a seasonally adjusted annual rate of $1,573.6 billion, the Census Bureau said. This is 0.5 percent below the revised August estimate of $1,582.0 billion, but was nearly 8 percent higher than a year ago. During the first nine months of this year, construction spending rose to $1,177.5 billion, 7.1 percent higher than the $1,099.8 billion for the same period in 2020.
Spending on private construction fell to a seasonally adjusted annual rate of $1,229.9 billion, 0.5 percent below the revised August estimate of $1,236.1 billion. Residential construction fell to a seasonally adjusted annual rate of $773.5 billion in September, 0.4 percent below the revised August estimate of $776.8 billion. Nonresidential construction fell to a seasonally adjusted annual rate of $456.4 billion in September, 0.6 percent below the revised August estimate of $459.3 billion.
The estimated seasonally adjusted annual rate of public construction spending fell to $343.7 billion, 0.7 percent below the revised August estimate of $345.9 billion. Educational construction rose to a seasonally adjusted annual rate of $80.7 billion, 0.9 percent above the revised August estimate of $80.0 billion. Highway construction fell to a seasonally adjusted annual rate of $99.8 billion, 0.7 percent below the revised August estimate of $100.5 billion.
“Higher building material prices, persistent difficulty in sourcing materials and shortages of skilled labor continue to weigh on construction activity,” said Mark Vitner, Senior Economist with Wells Fargo Economics, Charlotte, N.C. “The September data are clearly disappointing, although upward revisions to the prior month takes some of the sting out of the drop.”
Vitner said supply chain disruptions have made procuring key input materials a challenge. “Material shortages, which have led to skyrocketing prices for steel, copper and many other materials, have led to delays and are preventing some projects from moving forward,” he said. “Complicating the matter further, builders and developers are having a hard time finding workers, as evidenced by the lofty level of job openings in the construction industry. The inability of construction firms to staff a wide array of positions ranging from tradesmen to truck drivers adds yet another layer of uncertainty.”
Fast-rising material costs are also weighing on the nonresidential sector, Vitner said, which is still dealing with the aftershocks of the pandemic and shifting toward remote activities and social distancing. “The price of steel, which accounts for a significant share of the overall cost of many nonresidential projects, remains elevated,” he said.
However, Vitner said despite mounting supply-side headwinds, construction spending appears poised for improvement. “Residential construction has cooled somewhat over the past few months, but both single-family and multifamily permits continue to run at a strong pace, which indicates that builders and developers still have a robust project pipeline,” he said. “What’s more, supply constraints should ease somewhat this winter, as construction enters a seasonally slow period in the Northeast and Midwest, which could potentially free up resources for the South and West.”
