When January comes around, people make predictions and resolutions for the coming year and analyze the previous year’s ups and downs. Since the COVID-19 pandemic hit in 2020, construction work has been hard to predict and even harder to look back on. But as they say, someone has to do it. We’ll leave it up to the AGC (Associated General Contractors of America to report on 2021 and the first part of 2022.
First, a look back to December 2021, and some good news. Construction spending increased in December compared to both November and December a year ago thanks to growing demand for residential construction, according to AGC. Construction spending in December totaled $1.64 trillion at a seasonally adjusted annual rate, 0.2% above the November rate and 9.0% higher than in December 2020. Full-year spending for 2021 increased 8.2% compared to 2020.
Association officials noted, however, that spending on private nonresidential construction was flat for the month and down compared to a year ago while public sector construction spending fell for both the month and the year. Private residential construction spending rose 0.7% in December from a month prior and 12.7% from December 2020.
For 2021, residential construction spending jumped 23.2% from 2020, with gains of 32.8% for single-family spending and 15.6% for multifamily spending. Commercial construction–comprising warehouse, retail, and farm structures–inched up 0.1% in December and jumped 18.4% year-over-year, driven by surging demand for distribution facilities—the Amazon.com effect from the pandemic. Manufacturing construction spending fell by 1.9% in December, after 11 consecutive months of growth, but posted a 30.4% gain above its year-earlier level.
But that is where the good news ends, it seems. Public construction declined 1.6% in December, with decreases in 11 of the 12 categories, and 2.9% year-over-year. For 2021, public construction fell 4.2% from 2020. Highway and street construction increased 0.1% from November and rose 0.9% compared to December 2020. Educational construction slipped 1.4% for the month and skidded 8.5% year-over-year. Transportation construction spending fell 3.0% in December and 6.3% year-over year.
One reason for the declines in public sector construction spending is that Congress has yet to appropriate most of the additional funds authorized in the Bipartisan Infrastructure Bill signed by President Biden last year. They urged Congress to quickly make those new funds available so state and local officials can make the investments needed to improve the nation’s aging infrastructure.
They also urged federal officials to take additional steps to address supply chain disruptions and rising materials prices. These include continuing to remove costly tariffs on key construction components. The U.S. and Canada have been fighting over softwood lumber for decades. Every Administration since Ronald Reagan has concluded that Canadian lumber is unfairly subsidized and would compete unfairly against U.S. lumber.
These rules are subject to an annual review and thus the tariff rates for softwood lumber are subject to change. The U.S. Commerce Dept. did make a preliminary determination to lower softwood lumber import tariffs from Canada from the current rate of 17.9% to 11.64%. The rate is set to take effect by August of 2022.
Although it is difficult to quantify the impact of these tariffs on lumber prices, the price of lumber rose by 50% since the tariff rate doubled in November 2021. Any increase in the rate can adversely impact the construction industry, as Canadian imports make up nearly 30% of total U.S. consumption of softwood lumber.
But material shortages are only part of the equation. While construction employment increased in nearly two out of three U.S. metro areas in 2021, association officials noted that labor shortages likely kept many firms from adding even more workers. Job openings in construction totaled 273,000 at the end of December, an increase of 62,000 or nearly 30% from December 2020. That figure exceeded the 220,000 employees that construction firms were able to hire in December, implying firms would have added more than twice as many workers if they had been able to fill all openings.
Construction employment rose in 231 or 65% of 358 metro areas in 2021. Houston-The Woodlands-Sugar Land, Texas added the most construction jobs (8,800 jobs, 4%), followed by Chicago-Naperville-Arlington Heights, Ill. (6,500 jobs, 5%) and Los Angeles-Long Beach-Glendale, Calif. (6,300 jobs, 4%). Sioux Falls, S.D. had the highest percentage gain (24%, 2,100 jobs), followed by Beaumont-Port Arthur, Texas (18%, 3,000 jobs) and Atlantic City-Hammonton, N.J. (18%, 900 jobs).
Association officials said that the growing number of job openings in the industry was a clear sign that labor shortages are getting worse. They noted that the association’s recently released 2022 Construction Hiring and Business Outlook found that 83% of contractors report having a hard time finding qualified workers to hire. They urged Congress and the Biden administration to boost funding for career and technical education to help recruit and prepare more people for high-paying construction careers.
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