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Momentum still on the industry’s side

By and |  April 25, 2022
Rob Mineo

Mineo

George Reddin

Reddin

The construction materials industry celebrated the close of 2021 with the passage of the Infrastructure Investment & Jobs Act (IIJA).

This once-in-a-generation piece of legislation earmarked $1.2 trillion in infrastructure funding, including an additional $550 billion increase over baseline federal funding. Most importantly for the construction materials sector, the IIJA established a new surface transportation reauthorization act and a 30 to 55 percent increase in spending for roads and bridges – overall a positive outlook for the industry.

As of now, the construction materials sector also has some challenges on the horizon. Will departments of transportation have the employee bandwidth to get the work out to bid quickly? Are there sufficient construction crews to perform the work?

Additionally, other economic issues have come to light, including raging inflation rates, expectations around interest rate hikes, supply chain issues, the war in Ukraine and the ever-lingering COVID pandemic. FMI has investigated some of the issues and their impact on the construction materials sector, as well as the effects on mergers and acquisitions (M&A) in the industry.

Inflation

Residential, nonresidential and nonbuilding construction should all grow in the coming years, albeit at different rates. Click to enlarge | Source: FMI

Residential, nonresidential and nonbuilding construction should all grow in the coming years, albeit at different rates. Click to enlarge | Source: FMI

Inflation has been the boogeyman economists warned about for many years. However, the nightmare is becoming a reality at historic proportions.

In March, the Consumer Price Index (CPI), a measure of the average change in prices paid by consumers for a basket of goods and services, jumped 8.5 percent from the previous year – the most since 1981 according to the Labor Department.

The Labor Department also indicates that gasoline prices, a component of the CPI, had the highest year-over-year jump at 48.8 percent. The drastic rise in fuel prices will be something to watch as the year progresses.

For construction materials firms, those who can pass on increased costs to customers with timely price increases will be successful in navigating this inflationary period.

Labor market

“The war on talent” has been a tagline throughout the industry for several years, and unfortunately, this is still the case.

The Wall Street Journal recently published a piece highlighting the mass exodus of blue-collar workers. These individuals are moving to tech companies, where hiring practices have been adjusted to consider candidates without a college degree.

These jobs typically offer higher pay and benefits, as well as work flexibility. These “new collar” workers – individuals who have transitioned from traditional blue-collar work to more white-collar roles – are directly impacting the construction materials industry.

According to a survey conducted by the W.E. Upjohn Institute for Employment Research, the construction industry is seeing a significant reduction of workers. In the fourth quarter of 2021, “41,500 workers in construction, oil-rigging and extraction jobs reported moving into professional work – a 65 percent jump over the same period in 2019,” according to the institute.

The Wall Street Journal piece also notes that industry leaders are grappling with the dynamics of “job hopping” where workers move from one company to another for slight pay increases. These trends have become more normalized, and there are fewer consequences for individuals who leave a job because the demand for labor is so high.

When comparing the data of labor force participation and monthly job openings, there is still room for improvement from prior to the pandemic. Therefore, construction materials firms will have opportunities to bring on new hires, but the challenges will be in recruiting and retention. The construction materials firms that can both attract and retain talent will fare far better than their competitors.


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