As the country waits for news from Washington, where a small group of bipartisan senators are working around the clock to reach $ 1.2 trillion Compromised on “hard” infrastructure in legislative parlance, the road construction industry has come together for the mid-year meeting of the National Asphalt Pavement Association (NAPA). The optimism of participants is high and market drivers support this sentiment.
George Reddin, managing director of FMI Capital Advisors Inc., said the National Road Construction Confidence Index (NRCI) is the highest in years.
“People are highly anticipating an expansion of their business in the third quarter of 2021,” Reddin said. “The future is looking good. We may see some hurdles down the road, but overall things look positive.”
Reddin shared that 2021 is likely to be broadly stable for the non-building construction industry, but that the medium-term outlook is very bright, especially with the anticipation of a highway bill.
While optimism is high, Reddin shared that the industry has a few hurdles to overcome.
Three key drivers of economic growth
The promise of an infrastructure bill, labor shortage and supply chain issues are the major issues affecting not only the road construction market, but the construction industry in his outfit.
Reddin shared that at the state level, those who have their own sustainable infrastructure finance programs are in a better position than those who don’t. State budgets have performed much better than initially expected after the pandemic, although driving tax and gasoline revenues have been hit hard.
Going forward, Reddin says all eyes will continue to be on Washington for the renewal of the FAST law or other stimulus packages for infrastructure financing. The INVEST law has been passed by the House and is expected to allocate $ 343 billion for roads and bridges, but many problems remain for the passage of the separate bipartisan bill for infrastructure.
Senate Majority Leader Chuck Schumer (D-NY) has announced that he plans to hold a vote later this week to begin the process of reviewing bipartisan infrastructure legislation that includes 1.2 trillion dollars in investment over eight years, including nearly $ 579 billion in new financing.
The legislative text, currently being finalized, provides for the financing of “physical” infrastructures: roads, bridges, water, ports, inland waterways, broadband, airports and the electricity network. Notably, the package, initially negotiated by 11 Republican senators and 11 Democratic senators with President Biden, does not raise taxes on job creators in the country.
The next few weeks will be crucial in determining whether the Bipartite infrastructure framework will become legislation that will reach the office of the president and be enacted. The Senate holds the cards right now, and the House will decide whether significant infrastructure investments become a reality.
The labor shortage continues to have a negative impact on our country’s economic recovery. More than ninety percent of entrepreneurs surveyed by the US Chamber of Commerce say the lack of available workers is slowing their economic growth. Reddin said this was mainly due to extended unemployment benefits following the coronavirus pandemic, but there are many other issues that are causing the talent shortage.
Day care centers and out-of-school children were cited as a problem, but the main factor is the change in worker preferences. According to ZipRecruiter, 55% of job seekers surveyed said they had a strong preference for working from home. This type of worker would obviously not be suitable for construction jobs.
The Association of General Contractors reported that the construction workforce is down 3.1% from just a year ago. And with 9 million jobs open, we will continue to face real challenges in this area.
“We can always find ways to make more material, but if we don’t have the people to drop it off, that’s a problem,” Reddin said.
Supply chain issues
The global closures that took place in 2020 are still being felt in mid-2021. Rapidly rising material prices have been one of the main threats to a strong recovery in non-residential construction; however, this factor has become somewhat less of a concern in recent weeks.
However, shipping delays created bottlenecks in the manufacturing process. Delivery times have increased for parts and equipment and the prices for raw materials have increased dramatically. These delays in the delivery of materials and the runoff of supply chain challenges drive up prices for producers and consumers.
As a result, the industry will continue to experience delays in obtaining the equipment it needs and the cost will be higher for the foreseeable future. This inflation is the result of increased supply chain challenges. Reddin said input costs for construction companies rose 25%, but their bids only increased by 3%.
“If costs go up but margins don’t change, what does that mean for your bottom line,” Reddin said.
Still, demand for construction services is expected to be strong enough over the coming months to allow contractors to pass many of these higher costs on to buyers of construction services, thus preserving margins.
The industry is waiting for Washington’s next steps to continue to recover our economy and move our industry forward.