The last three years have been a crazy ride for all of us, especially in the construction industry. The journey began with the onset of the pandemic in which the national, if not global, response to the virus was to shut everything down that was not considered “essential.” And if the industry did not shut down, those that provided goods and materials drastically reduced their output to keep from stockpiling inventory that may not be used for weeks, months, or even longer. These massive shutdowns and cutbacks led to a recession in 2020, but it was one of the shortest ever recorded. The quick turnaround time was brought about by a strong rebound in consumer demand which led to an unprecedented imbalance in the supply and demand paradigm. This shockwave later became better known as the supply chain disruption.
Prices for select materials have begun to stabilize here in the US slowly. Still, unfortunately, Covid-19 continues to plague China, a significant supplier of all kinds of goods in the US, including construction. Covid-19, along with impacts from the war in Ukraine, means disruptions and instability in the chain will continue.
Maybe worse than the supply chain crisis, massive labor shortages have further stunted recovery. As many as 400,000 construction jobs reportedly remain unfilled. These shortages started during what is coined “the Great Resignation.” In addition, baby boomers are retiring, leaving the country with a vulnerable workforce. To make matters worse: younger generations are choosing less physical forms of employment, leaving an empty bench for many.
The news is not all bad, however. The overall industry responded relatively well to the pandemic, and spending on construction is rising. According to sources, construction spending was up in 2022 by more than 12% in Q1 and looks to continue in the future. The residential sector drove the increase (+18%), with the Nonresidential Building and Nonbuilding Infrastructure to follow (7.4% and 3.5%, respectively). The construction industry is a resilient bunch. Firms have adapted their purchasing programs by adopting technology to innovate and automate their processes. Furthermore, firms have turned to technology to integrate their projects, from engineering to preconstruction to project delivery. This innovation has led to increased productivity and higher margins helping offset the Covid-hangover’s impact.
Unfortunately, the crystal ball is becoming extremely fuzzy again. Inflation is at a 40-year high, and the Federal Reserve has instituted rate hikes to slow down the economy. The impacts of rate hikes and a slowing economy can be staggering to the construction industry. Rate hikes typically increase the cost of construction materials as manufacturers and suppliers are forced to trickle down their financing costs. Moreover, due to the increased cost of money, project starts may begin to slip, lowering the opportunity for projects and forcing firms into bidding wars. This is unfortunate for an industry that suffers from a fractured supply chain. We will keep our fingers crossed for a rapid economic recovery and a return to happier days.
Established in 1998, CapitalPlus Financial Services is a leading provider of accounts receivable financing and materials financing for construction companies, general contractors, subcontractors, and disaster recovery providers of all sizes and types. With decades of industry experience, our expert team understands the challenges our customers face within the industry and strives to provide quick, flexible working capital solutions for construction companies in all trades. Learn more by contacting us or calling 865-670-2345Back to blog