The delta variant slows down the recovery of construction activity “significantly”, says the economist

Diving letter:

  • According to a data analysis by Associated Builders and Contractors published by the U.S. Census Bureau on September 1, national construction spending on non-residential buildings rose 0.1% in July, down 4.2% year over year.
  • While the data suggests commercial construction spending was virtually unchanged in July, the numbers are “significantly worse than they appear,” said ABC chief economist Anirban Basu. in a press release. Adjusted for inflation, the volume of construction work performed by US trading companies actually fell in July, he said.
  • The reasons for the decline are diverse, said Basu, including higher material prices and a worsening shortage of skilled workers. In addition, many project owners delay orders due to increased costs. “As COVID-19 continues to devastate supply chains, material prices and transportation costs will remain elevated well into 2022. The result is that construction recovery is much slower than usual, ”he said.

Dive Insight:

The data suggest that public construction spending was more negatively impacted than private spending, Basu said. While total construction spending on non-residential buildings fell by 4% year-on-year, public construction spending fell by more than 5%.

Annual spending decreased in 11 out of 16 sub-categories for non-residential buildings. The only sectors that have grown at this point since last year are:

  • Commercial (3.4%)
  • Sewage and waste disposal (2.1%)
  • Manufacturing (1.9%)
  • Performance (0.9%)

The sectors with the greatest declines were:

  • Public safety (-38.5%)
  • Accommodation (-30%)
  • Conservation and development (-21.5%)

Auditing firm Marcum’s latest Commercial Construction Index report, released on September 1, warns that contractors should take steps to mitigate the risks posed by rising prices.

“The high inflation is likely to continue through 2022 as global suppliers continue to struggle to keep up with increased demand for goods and services,” Basu said in the Marcum report. “Accordingly, contractors should eagerly include contingencies in their contracts to protect themselves from price spikes through additional materials. Given the high demand for construction company services and the continued high backlog of orders, contractors should, in most cases, have enough room to negotiate to achieve this. “

The overall picture for the US construction industry remains “generally positive”, but the Marcum study confirmed ABC’s assessment that the delta variant had clouded the economic outlook for this year and beyond.

“Without the delta variant, one would simply forecast a booming economy in 2022,” said Basu.

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