More than a year after the outbreak of the COVID-19 pandemic, the construction industry is faced with unprecedented supply chain disruptions even as the economy at large shows signs of climbing back to where it was before the coronavirus.
That’s according to two experts who joined the Daily Reporter’s Builder Breakfast series Wednesday to discuss supply shortages and price increases in materials such as lumber, steel, plastics and other products.
Ken Simonson, chief economist at the Associated General Contractors of America, and Brad Boycks, executive director of the Wisconsin Builders Association, discussed what contractors are doing to cope with these difficulties, which have arisen as a result in large part from strong demand for housing.
Simonson said the price of common construction materials— such as lumber, copper and steel — has risen by between 45% and 90% within just the last 12 months. The rapid price increases have made life even harder for contractors already dealing with a workforce shortage and the threat that the pandemic could continue to disrupt the economy in the months ahead.
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“It is prolonging the cost squeeze in this sense that, while we seem to be past the worst of the infections and the shutdowns, we may still have localized flare-ups,” Simonson said. “But even if things do keep getting better, there are going to be many plants and many construction sites where you can’t get the full workforce back.”
“You may still have requirements for greater distancing or other things that slow down the production process, whether it’s at a saw mill or at a construction site,” he added.
Simonson noted that losses in construction employment brought on by the pandemic have largely been recovered. Within two months of the outbreak, construction employment nationally fell by 15%, or by about 1.1 million jobs. That was about half as many as the industry lost in total between 2006 and 2011.
Most of the latest losses, though, have already been recovered. In April, U.S. nonresidential construction employment was still about 5% lower than it was in February 2020.
As for Wisconsin, its figures have been a bit better than the national average. By April, the state’s construction industry was employing about 1.4% fewer workers than it had been before the pandemic. Only 14 states nationally have seen their numbers for construction employment recover to what they were before the pandemic.
Biggest increases seen in lumber
Meanwhile, contractors are contending with acute supply chain disruptions. The biggest culprit here is lumber prices, which have risen quickly since the outbreak of the pandemic.
Boycks said lumber prices have risen 250% since April 2020, a “pretty staggering number that has not really leveled off.” Because large numbers of construction companies are likely locked into months-old contracts, many are likely absorbing these cost increases instead of passing them on to consumers.
“Because folks are generally busy, I think contractors are eating some of those costs in order to continue to move houses and not lose sales,” he said.
Boycks said the rising lumber prices — along with the prices of most other construction inputs — are something that state lawmakers in Wisconsin can do little about. He and his colleagues are instead looking at alternative ways of holding down the cost of new homes. Before the pandemic, for instance, the Wisconsin Builders Association had been promoting legislation meant to encourage the construction of so-called workforce housing.
AGC calls for eliminating tariffs on certain materials
Simonson, meanwhile, said the AGC of America has been calling on federal officials to eliminate the government’s 9% tariff on Canadian lumber and 25% tariff on steel products. He also noted increases in the price of other materials. Aluminum prices, for instance, have risen by 17% in the last 12 months, an increase that would be seen as significant in a typical year.
Such disruptions are due to a broad logjam in the global economy, Simonson said. Many suppliers have exhausted their backlog of materials, he said.
“There are an awful lot of interconnected pieces, and if just one link breaks or gets stopped up, you have these gigantic stacks of containers waiting for trains to move them off the port for 11 days, instead of the typical one to two days,” he said.Follow @natebeck9