Material and labor shortages stop the construction boom

Recent government figures suggest the pandemic’s recovery has run out of breath, largely due to slumps in repair and maintenance and new work in private housing.

Monthly construction output fell 1.3% in June, driven by a decrease in repairs and maintenance (4.2%) offset by a slight increase in new orders (0.5%).

That decline pulled industrial production below its pre-February pandemic peak.

Despite three monthly growth declines in a row from April to June, the trend growth in the second quarter remained 3.3% above the first quarter due to the constant expansion of infrastructure.

The annual growth rate of producer prices in construction reached 3.4% in June, the strongest annual growth rate in producer prices in construction in nearly two years.

Beard’s chief financial officer, Fraser Johns, said, “For production to fall below pre-pandemic levels for the third straight month, some alarm bells should be ringing.

“As an industry, we have been saying for months that the upswing in the pandemic could possibly be wiped out by a combination of severe material shortages, rising prices, labor shortages and now not enough trucks on the roads to supply construction sites.

“It’s not the kind of prediction anyone would want to be right about, but today’s statistics show that these issues are really starting to bite.

“At the same time, it is encouraging to see quarterly growth in the second quarter up 3.3% over the first quarter, driven in part by new orders, but at 4.8% it is slightly below the growth of the overall economy. And of course the first quarter was still under lockdown.

“Right now we need to work with suppliers, appraisers, customers and consultants to proactively address the issues we are facing and take a tiered approach to things like purchasing to help us navigate our way out of this current decline.”

Mark Markey, Managing Director of Scottish construction company Akela Group, said: “It is disappointing that monthly production has decreased and there is no doubt that the sector has been affected by supply and rising material costs.

“At Akela, we have adapted our procurement processes so that the required materials are on site when required.”

Across the industry, the limited availability of wood, steel, cement and tiles affects most sectors with the exception of infrastructure, industrial and social housing.

Looking ahead, incoming orders point to better prospects if project starts are not constrained by labor and material shortages.

Total construction orders in the second quarter increased 18% from the first quarter January through March.

Private commercial offices in particular saw strong growth (48%), likely due to the return of workers to the office. The growth in infrastructure (25%) was driven by orders for both road and rail projects.

Incoming orders in residential construction were more subdued, with private residential construction increasing by almost 5% and public housing construction by 15%.

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