By Richard Branch, Chief Economist
Prices are rising, workers are hard to find, logistics chains remain tangled, and leading indicators of construction are softening … what does it all mean?
First the good news: lumber prices are falling. This should help stabilize the single family market and make it easier for builders to put more homes on the market in 2022.
The bad news? As lumber prices fall, metals and plastics prices are accelerating. This poses more of a risk to nonresidential construction where those materials are more prevalent.
Our leading indicator for nonresidential buildings, the Dodge Momentum Index has seemingly responded in kind as developers slow their planning activity. While this might suggest weakening impetus for construction as we head into the fall, it’s meteoric rise earlier in the year was unsustainable given underlying demand for buildings. Even as the measure has receded, its overall level remains very high, suggesting there are still many projects in the pipeline that will allow nonresidential construction to post modest growth over the next few months. Furthermore, anticipated passage of the infrastructure bill will provide a solid boost to the nonbuilding sector in 2022.
So overall, I think the construction sector is in a reasonably good place. The labor issues facing the industry are tougher nut to crack. There are currently 345,000 open positions in the construction sector, a lower number than prior to the pandemic, but the underlying trend remains troubling. The shortage of skilled labor is acute across the economy and is restraining growth. As schools and daycare centers closed during the pandemic many parents were forced to forgo work to stay at home with their children. With the Delta variant leading to an increase in new COVID cases, the concern is that schools will once again be forced to shift to remote learning keeping workers out of the job pool.
How widespread is the labor shortage? My family and I took a vacation to visit a friend’s working cattle ranch (this was no dude ranch) in northeast New Mexico. We saw both ends of the post-pandemic life —the ability to travel and see friends again, but also the shortage of labor. Our friends explained that they would normally have four or five ranch hands helping them with the herd, but due to many factors they can’t find skilled labor. So, they recruited us to help them during the week moving parts of the herd from one pasture to another. While I’m pretty comfortable on a horse, this was an entirely new skillset and highlights the extreme measures that employers are taking across the country to keep their businesses open.
Upon returning home, our friends texted to say they appreciated the help, and that part of the herd took top dollar at auction. I’d like to think that’s due to the “white glove” treatment they received from this cowboy economist, but as summer ends and the burgers go on the grill over Labor Day, it gives me new appreciation and insight into what employers are facing across the country.