Submitted by Associated Builders and Contractors, Massachusetts Chapter
The construction outlook for 2022 is generally positive, but not the boon it would have been were it not for the continued impacts of COVID, according to Associated Builders and Contractors (ABC).
The pandemic has rattled global supply chains by further reducing workforce availability. The result has been a proliferation of material shortages and sky-high prices.
During a recent 12-month period, the aggregate price of materials and inputs to construction climbed nearly 21%. Some of the largest increases were in natural gas, steel and lumber. On top of rising material prices, the cost of transporting them has skyrocketed.
Labor market shortages have been particularly severe in construction. In July 2021, 4.2% of U.S. construction jobs – 321,000 – were unfilled, the highest number since the government began tracking this in 2001.
All of this, along with political turbulence, has slowed nonresidential construction’s forward momentum. ABC’s Construction Backlog Indicator hit the brakes in August 2021, falling to 7.7 months, the lowest reading since January. This sudden decline followed a period of steady backlog recovery that persisted from November 2020 to July 2021. Contractor confidence also fell in August of 2021, according to ABC’s Construction Confidence Index.
After the dramatic pace of economic recovery that characterized 2020’s final eight months and the early months of 2021, economic growth is set to soften in 2022. While recession appears unlikely in the near-term, the year to come will not produce a further boom in activity and will face some substantial headwinds.
It is important to remember that economic activity is driven by flows of capital. That capital could become more expensive in 2022 as monetary policy shifts, producing likely increases in interest rates in the process. With so many economic actors so fully leveraged, even small increases in interest rates can produce substantial drag on the economy. A sudden surge in borrowing costs could be enough to throw the 2022 economy into reverse, though such a surge appears unlikely. Still, contractors and other construction industry stakeholders should be eyeing interest rates closely over the year to come.
ABC MA members contacted had generally positive views about 2022 but noted the challenge of the tight labor market. According to data released by ABC, Massachusetts construction unemployment showed a 3% drop in September 2021 versus September 2020. That was better than the national average. Local ABC contractors note they expect it to remain a very tight and competitive labor market in 2022. They expect strong performance to continue in the education and housing sectors, although the ongoing pandemic puts some question marks on the future strength of market for transit-based housing. Infrastructure will be buoyed by state and federal spending that should start flowing by the later part of the new year.
One Massachusetts contractor summed it up this way: “I can’t think of a time when we have had so much work but had so many challenges.”