As COVID Clouds Churn, Markets See Mixed Outlook
What's ahead on spending, labor & materials
Although the COVID pandemic storm has been described as a “blip” compared to the 2008 Great Recession, it has certainly not been trivial for those finding themselves in the eye of said “blip.” It continues to be a good news/bad news situation. In terms of good news, residential construction spending skyrocketed upward by a reported 25.3 percent during 2020, spurred by low mortgage interest rates, a low housing inventory, COVID mandates, increased remodeling due to sequestration and strong demand for bigger living spaces as stimulated by work-from-home needs.
On the bad news side of the ledger, the non-residential sector undertook a precipitous decline during 2020, declining by a daunting 23.6 percent. While the sector appears to be bouncing back, it is difficult to know the extent to which the sector is returning to normal. A major opposing factor is the availability of materials, which is thwarting the ability of producers to meet growing demand.
“Higher materials prices and worsening skills shortages represent the primary culprits,” said Associated Builders and Contractors’ Chief Economist Anirban Basu in “Civil + Structural Engineer Media” in fall 2021. “The result is that the construction recovery is significantly slower than it would otherwise be.”
Per the Bureau of Labor Statistics through September 2021, the overall economy has 10.4 million unfilled jobs, 333,000 of which are in the construction sector (down from a 351,000 peak in April). And yet, per the U.S. Chamber of Commerce in its Third Quarter 2021 report, 55 percent of surveyed contractors report a high level of difficulty finding skilled workers. Nearly all expect the problem to stay the same or worsen into 2022. In addition, the pandemic has created absenteeism issues as well as reduced production and installation efficiency due to social distancing requirements.
A survey recently conducted by the Associated General Contractors of America determined that, as much of an uphill battle as the current labor situation is, most disruptions were found to be due to poor material availability, with 52 percent reporting shortages. The same holds true for window manufacturers, who report that, due to the global pandemic, international tariffs and competitive demand for solar panels, glass is becoming harder to find and more expensive to purchase. Some factories have had to slow or halt glass production, frustrating efforts to meet demands.
According to FGIA’s most recent reporting in the September 2021 FGIA Industry Update, the forecast for non-residential window demand in 2021 saw a 4.7 percent decline, slightly down from the April forecast. The longer-term outlook for 2022 and 2023 has also weakened although still growing, with increases of 1.2 percent now forecast for 2022 and 1.6 percent for 2023. The forecast 2023 demand remains 13 percent below the 2019 peak level.
FGIA’s reporting expects the non-residential sector to have resumed growth at 7 percent during 2021, logging in at a total of 9.6 percent higher than the 2020 COVID lull by the end of 2022. Non-residential contract awards are forecast to have increased by 2.5 percent by the end of 2021 and continue to grow in the following 2 years at 7.0 percent and 3.0 percent, respectively.
In general, many window manufacturers are trying to determine how much to expand capacity and hire more people to meet uncertain but potentially high demand. Complicating matters is that a commercial market resurgence usually lags, improving overall economic conditions by about 12 months. There will also be different paces of recovery across the various U.S. regions, currently led by the Midwest.
Max Perilstein, founder of Sole Source Consultants and frequent contributor to this magazine, sums it up: “Bottom line is it is still a battle out there, supply and labor rule the roost and doing everything you can to be diverse and efficient is the key.”