Linda’s Midyear Construction Outlook

Where has the first half of this year gone? If you are anything like me, you are already looking ahead to fall activities such as the NECA Convention and Trade Show. If you are attending, come visit us at Booth #2207! Speaking of which, the topic this month in the editorial calendar of ELECTRICAL CONTRACTOR Magazine is the midyear construction outlook. Let’s look at some factors and what they might mean to you.

CONSTRUCTION SPENDING AND PRICING

The good news is that construction spending is up 8.5% from 2020. However, part of that growth undoubtedly came from rising material costs. Have you seen the price of lumber and other wood products?  At one time, you could go to a big box store and buy a sheet of plywood for around $35. Last time we checked that same sheet was approaching $100. That’s pure insanity and it makes me thankful that we are not in construction using lots of lumber! (Although at time of publishing, the prices are starting to come back down.)

Being in the preconstruction field, we do see a lot of material price fluctuations, especially with copper wire. As you know, when material pricing is rising higher and higher, you should qualify your bid and write in a material price escalation clause OR carry a higher number in your bid which of course makes you run the risk of not getting the project award. Weigh your options!

All this fluctuation and rising costs were predicated by the climb in producer prices, which climbed 6.6% in May alone, signaling the largest 12-month increase on record. One could say that we are in an inflation, a term where sustained increases in prices of goods and services are prevalent. Is this bad news?  Not necessarily!  To some, inflation signifies a struggling economy; others see it as a sign of prospering economy. Who’s right?

I always say that the truth lies somewhere in between. While prices are rising, the interest rates are either falling or steady, meaning the cost of borrowing is lower. It also means that the value of the dollar is less, which reduces purchasing power. However, at the same time, it encourages spending and investment now, rather than later, on things like capital investments. As a side note, investors are buying gold and other precious metals because they are less susceptible to inflationary fluctuations and are considered “safe” investments.

HOT MARKETS

From what we can see, the real estate market is booming, and in some cases, there are auctions or bidding wars due to low inventory and such a high demand, particularly in places that are deemed desirable to live. Apartment and condominium complexes are common projects for our estimators.

At Candels, we have also seen quite a bit of retrofit work as buildings are being repurposed based on the change in workforce requirements following COVID. We are also seeing lots of infrastructure work on electrical substations, department of transportation facilities, and water/wastewater management facilities. We are seeing less and less of big box retail, but much more tenant fit outs.

OVERCOMING THE LABOR SHORTAGE

All this work that is still going despite inflation comes at a cost. The labor shortage is real. According to The Associated General Contractors, or AGC, 81% of construction firms are having trouble filling both salary and hourly craft positions.  Interestingly enough, 72% of the companies surveyed anticipate that the labor shortages are going to be the biggest hurdle within the next year.

The good news is there are ways to address the shortage. Training current employees to develop new skills and move into a different position retains your current team and avoids them leaving to work elsewhere. Employee retention is key! Adaptability is also key, meaning workforce skills can be applied in a different way. Some companies are partnering with educational facilities to ensure workforce continuity as students emerge into the workplace. Other companies have found it beneficial to outsource certain tasks such as human resources, and, in our case, estimating.

PROMOTING THE TRADES

Over the years, there has been a major push to get high school students to advance their education by attending college. However, college is not for everyone and the trades could really use a boost in new, younger workers. We must lessen the stigma that university is the only career track for our students. It does work from some – but not everyone. Anyone new to a trade will almost always get paid for on-the-job training thereby eliminating hundreds of thousand of dollars in student loan debt. Yes, tradesmen do typically do classroom hours, but the cost of trade school is much less in comparison to university tuition. It is also important to mention that the graduate’s typically being earning a living wage right after they complete their program.

FINAL THOUGHTS

As we move into the second half of the year, remember the adage, “bid while you are busy.” We cannot stress enough how a good backlog can get you through the lean times. This comes with work and relationships, although any seasoned business owner is practicing this already.

Even the worst of times present opportunities – after all, most of us did just survive a global pandemic. Keep your eyes open, keep developing and maintaining good relationships with your general contractors and suppliers, and only bid work that fits your objectives. Now is not the time to panic. It’s time for smart decisions and moving forward with confidence.

I’ll check in with you next month as we unpack all things related to smart building.  Be sure to check out Marc’s new podcast Electrical Estimating with Marc Candels. You can listen and subscribe wherever you listen to your podcasts.

Finally, thank you for reading, and, as always, happy estimating!