2022 Construction Industry Overview
2022 Construction Industry Market Overview
The construction outlook for 2022 is looking positive, but the industry will face challenges, says Anirban Basu, chief economist for Associated Builders and Contractors (ABC) and CEO of consulting firm Sage Policy Group.
In Dec. 2021, professional services and consulting firm PwC released a report on the 2022 outlook for engineering and construction deals. They determined that the industry is well-positioned for the coming year, despite supply chain disruptions, high material costs and labor shortages. The report also projects that the Infrastructure Investment and Jobs Act will boost even more in nonresidential construction and increase activities in mergers and acquisitions. According to Basu, it will pay off to be a bigger firm in order to take advantages of increased financial leverage and economies of scale, and to be able to bid on larger-scale projects expected to be coming under the Biden administration.
Overall, the industry contracted 2.9%* n the headwinds it faced, not just from COVID-19 challenges but from a variety of economic factors. In 2022 however, there are some bright spots that are expected to result in an industry growth rate of 4.5%. While economic challenges remain, this year looks to provide growth opportunity across a number of construction industry sectors
Industry Trends and Leading Indicators
Across the industry, there are several leading indicators and trends that will affect construction growth. While some areas are being hard hit by the economic downturn, like hospitality, other sectors are expecting a rise in industrial activity, such as warehouse space and infrastructure.
Further, much of the money for government construction included in the American Rescue Plan has yet to be spent. State and municipal dollars will be poured into local projects with schools expected to be the biggest beneficiaries. But now additional infrastructure funds will be released, so there will be even more funding available for large, multi-faceted projects.
Continually a high priority will be safety and compliance. More than ever, safety, and maintaining a safe and healthy work environment is a main concern. It is expected that safety and OSHA compliance will remain a priority into 2022. Currently, the Biden administration is enacting and further poised to implement strict safety inspection, PPE and Covid protocols to maintain the focus on worker health and safety.
Other key trends are also in the mix.
Here are the top factors that will influence the industry in the new year:
Safety Remains Paramount
The Biden administration is taking OSHA compliance and workplace safety seriously and imparting increased vigilance to keep workers safe. Additionally, workplace safety compliance and reporting will remain a priority and focus in 2022.
OSHA appears poised to increase safety inspections on jobsites nationwide. Increased penalty amounts for serious violations ($14, 502 for 2022) are applicable to OSHA citations issued after January 15, 2022, for violations occurring after July 15, 2021. In terms of a percentage increase (6.2%) from 2021 to 2022, this violation increase is the largest in jump in the base penalty amount since yearly increases started. Organizations throughout the economy would be well advised to develop comprehensive safety compliance policies to avoid paying larger fees/violations, maintaining worker safety and staffing, and incurring increased project delays.
Planning for Staffing Challenges
In 2020, at the onset of the pandemic, the construction industry shed over 1.1 million jobs in just two months: March and April. By the end of that year, the construction industry had added back all but 248,000 of those jobs, per the Bureau of Labor Statistics. The impact of not filling job openings has negatively affected construction firms, including project delays and cancellations, projects being scaled back, inability to respond to market needs, losing project bids, and failing to innovate, among others.
The need for qualified and experienced workers will be a challenge into 2022. With subcontractors experiencing a contraction, general contractors will also be challenged to hire enough in-house workers. It is expected that when pent-up demand of mothballed projects are brought back on-line once the pandemic is brought under control, hiring will bounce back.
The Commercial Construction Index report shows 70% of contractors struggling to meet project deadlines amid the ongoing labor shortage, while also pointing to an opportunity to improve younger workers’ unfavorable perception of careers in construction.
Price Increases and Supply Chain Shortages
The construction industry, which is acutely aware of price increases and supply chain delays, has watched lumber, copper, steel, aluminum and other construction material prices skyrocketed as a result of the pandemic. During a 12-month period, the aggregate price of many construction materials climbed nearly 21%. Among the categories that experienced the most profound increases were natural gas and steel.
After several months of decline, lumber prices began to rebound during the late summer and into the fall of 2021. Among the other categories that have experienced profound input price increases over the course of the pandemic are steel mill products, iron/steel, copper wire, natural gas and a variety of unprocessed energy materials (e.g., crude oil).
On top of rising materials prices, the cost of transporting them has skyrocketed, up 1,150% compared to February 2020, according to the Baltic Dry Index, which benchmarks the price of moving raw materials. Because the United States remains the leading importer of raw materials, this disproportionately challenges US-based projects.
Price increases, however, are not the only negative impact of backlogged supply chains. In August, 17% of Associated Builders and Contractors members who participated in a survey said their work had at some point been interrupted due to difficulty securing materials. As project delays abound forcing certain manufacturers to further curb production. By all indications, supply chain issues are expected to persist well into 2022 and possibly beyond.
Infrastructure is a Bright Spot in 2022
On the bright side, there should be increased focus on infrastructure and building projects. This is especially true with the Biden administration’s push toward a greater focus on infrastructure. After years of stopgap measures and short-term spending bills, Congress finally passed a long-term infrastructure bill with the $1.2 trillion Infrastructure Investment and Jobs Act. Some of the top areas for growth in construction in 2022 will come from infrastructure spending.
It is expected that over the next five years, $550 billion of new federal investments will be spent in constructing new infrastructure and much-needed repairs to existing things like roads, bridges, and tunnels.
Continued Focus on the Environment
Again, with the Biden administration, signs point to a continued interest in keeping environmental initiatives front and center. The opportunity for construction contractors illustrates the widening awareness of a broader range of companies focusing on the environment. Whether these initiatives take the form of solar, renewables, green building protocols, retrofitting existing buildings, remains to be seen. However, a broad focus on environmentally friendly building looks promising for the construction industry. Construction companies that have capabilities to support green building standards and sustainable efforts by their clients are going to be positioned to thrive.
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Disclaimer: The information contained in this article is intended for general information purposes only and is based on information available as of the initial date of publication. No representation is made that the information or references are complete or remain current. This article is not a substitute for review of current applicable government regulations, industry standards, or other standards specific to your business and/or activities and should not be construed as legal advice or opinion. Readers with specific questions should refer to the applicable standards or consult with an attorney.