SMU Community Chat: Simonson with the latest on construction

He noted that he doesn’t expect any rate cuts before 2025. This was just one of the many issues related to construction that he touched upon in an SMU Community Chat on Wednesday.

The Arlington, Va.-based AGC is an association that represents 27,000 firms active in the construction industry.

Construction outlook

Digging into some of the recent US Census Bureau numbers, Simonson said that from February 2023 to February of this year, private residential construction grew 7% and nonresidential increased 14%. And all of the nonresidential categories have been growing, he noted.

Total construction spending was up 11% year on year, Census data show (numbers are not adjusted for inflation).

“We had single family now up 17%,” he said. “I think that’s a surprise to a lot of people who think it’s still in the dumps. But the real low point happened over a year ago, and it has been climbing for the last 10 or 12 months.”

However, he cautioned that the reason all the spending put in place is holding up “is not really a good news story.”

“It’s a sign that contractors have been waiting and waiting to get hold of switchgear and transformers, so that they can get power into apartment buildings and other types of buildings, and then light them up and without that kind of delay,” he said.

Still, Simonson said that his outlook remains “positive overall for construction.”

“But I warn you that labor availability is going to keep some projects from finishing on time. And will drive up the cost. And these are going to be problems that will persist for quite a while,” he added.

Wage premium in construction

In his remarks, Simon touched on what he termed a “wage premium” in construction.

This entails the challenge construction faces in that it requires workers to be outdoors in all kinds of weather. “They can’t just drop their tools and leave in the middle of the day,” Simonson said. For this they are paid a premium over other workers.

Simonson uses a series of metrics in national labor statistics involving a comparison of average hourly earnings for production and nonsupervisory employees in construction with the average for production nonsupervisory workers in the private sector to determine the premium.

The premium was relatively constant from 2000 to 2019, but shrank with the outset of the pandemic as pay increased at grocery stores, restaurants, etc. People at home were more apt to order meals and goods. Subsequently, warehouses, delivery companies, etc., raised their pay.

He said it’s come back gradually, “but nowhere near what it was before.”

Simonson believes that the premium will go up even more to “attract workers to construction jobs at a time when so many other jobs can be done remotely or on a hybrid basis, or with flexible hours.”

Infrastructure

One hot topic on the Community Chat was when government infrastructure money will start rolling in for projects. Simonson said that, by and large, many contractors are still saying they have not won project awards.

“I think that will be changing as we go through this year,” he said. However, he noted there are still questions swirling around what “qualifies for waivers under the Build America, Buy America Act that’s going to be a very tricky process to navigate.”

“This year, I expect to see a lot more broadband Internet build-out, and some of the other smaller categories also growing,” he said. “And then huge projects for rail tunnels and other passenger rail getting started this year.”

Baltimore bridge fallout

Ripped from the headlines, Simonson was asked if there’s been any impact on construction from the May 26 collapse of the Francis Scott Key Bridge in Baltimore.

“I’ve been asking about that since the day it happened, and fortunately nobody has said that they have experienced a delay in receiving materials that they needed or any price increases,” he said.

“I think that companies and authorities have done a great job of trying to mitigate the damage to the logistics,” Simonson added.

Looking ahead, he said he’s more optimistic than he was three weeks ago that the event will not have an impact.

Of course, this is just a brief snapshot of what was discussed. To see a replay of the whole chat, click here.

Also, be sure to catch our next Community Chat on May 1 at 11 a.m. ET with Hybar CEO David Stickler. You can register here.