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 | Mar 29, 2018
AIA and the University of Minnesota partner to develop Guides for Equitable Practice
The Guides for Equitable Practice will be developed and implemented in three phase.
Market Data | Mar 22, 2018
Architecture billings continue to hold positive in 2018
Billings particularly strong at firms in the West and Midwest regions.
Market Data | Mar 21, 2018
Construction employment increases in 248 metro areas as new metal tariffs threaten future sector job gains
Riverside-San Bernardino-Ontario, Calif., and Merced, Calif., experience largest year-over-year gains; Baton Rouge, La., and Auburn-Opelika, Ala., have biggest annual declines in construction employment.
Market Data | Mar 19, 2018
ABC's Construction Backlog Indicator hits a new high: 2018 poised to be a very strong year for construction spending
CBI is up by 1.36 months, or 16.3%, on a year-over-year basis.
Market Data | Mar 15, 2018
ABC: Construction materials prices continue to expand briskly in February
Compared to February 2017, prices are up 5.2%.
Market Data | Mar 14, 2018
AGC: Tariff increases threaten to make many project unaffordable
Construction costs escalated in February, driven by price increases for a wide range of building materials, including steel and aluminum.
Market Data | Mar 12, 2018
Construction employers add 61,000 jobs in February and 254,000 over the year
Hourly earnings rise 3.3% as sector strives to draw in new workers.
Steel Buildings | Mar 9, 2018
New steel and aluminum tariffs will hurt construction firms by raising materials costs; potential trade war will dampen demand, says AGC of America
Independent studies suggest the construction industry could lose nearly 30,000 jobs as a result of administration's new tariffs as many firms will be forced to absorb increased costs.
Market Data | Mar 8, 2018
Prioritizing your marketing initiatives
It’s time to take a comprehensive look at your plans and figure out the best way to get from Point A to Point B.
Market Data | Mar 6, 2018
Persistent workforce shortages challenge commercial construction industry as U.S. building demands continue to grow
To increase jobsite efficiency and improve labor productivity, increasingly more builders are turning to alternative construction solutions.