If you ever wanted to do a study on how supply and demand can have a negative and positive impact on one industry, then you should start taking a look at the relationship between rising construction material costs and the rate of growth in construction jobs. The supply and demand relationships in this particular study are all intertwined in relation to jobs, materials, profit margins, and consumer expectations. The commercial construction industry is finding it difficult to balance all of these different elements, and that may mean that something somewhere will have to give.
Are Construction Material Costs Affecting Jobs?
Firstly, it helps to look at the increase in material costs over the last year. ConstructionDive.com reports that construction material costs have risen 0.3 percent between August and September of 2016. The year-to-year comparison of that period of time from 2015 to 2016 shows a 0.1 percent increase. Regardless of how you look at it, construction material prices have been going up for the last 12 months at least, and those price increases cut into the margins of construction companies.
The year-to-year price increase for commercial construction materials is the first increase since November 2014. Prices held steady for a while, and then they started to rise. In 2011, material costs rose because the construction industry was experiencing a drop in new activity and suppliers had to raise prices because of the slowed demand. In the construction industry, supply and demand often work opposite to the way it works in the retail world. If construction activity slows, suppliers raise their prices to make up the difference because they know their supplies will sell. There is always construction going on, and there is always some need for construction materials.
Skilled Labor In The Construction Industry
The construction industry is also unique in that a steady increase of work can eventually do more harm than good. As the country made its way out of the Great Recession of 2008, the construction industry was slow to recover. During the recession, the construction industry almost came to a halt and many of the skilled labor workers went off to find new careers. When the industry finally started to pull out of its economic slump, it found a significant lack of skilled labor to choose from.
The Associated General Contractors of America took a survey in 2015 that included nearly 1,500 commercial and residential contractors. The survey found that 79 percent of the companies that responded said they were having a tough time finding skilled labor. That number dropped to 69 percent in 2016, but three out of every four contractors indicated that they were worried about being able to find the skilled labor they needed to fill contracts.
When the construction recovery started in 2012, the industry did nothing to replace the large numbers of skilled laborers who abandoned the industry during the Great Recession. Instead of focusing on replenishing their workforce, the construction industry dove into whatever work they could find and rapidly used up the available pool of workers.
In 2016, construction companies have been forced to raise wages to attract the existing skilled workers, and they are subsequently forced to invest millions in training new workers to take on skilled positions. The process of getting new workers up to speed in skilled positions is a long one, but some firms are rushing workers out into the field. The result is an increase in costs due to job site accidents and a small amount of turnover among the newly trained skilled workers.
If the construction industry is going to grow and meet demand, it has to continue to invest in workers and training programs. Millions of dollars will be spent in an effort to try and get the industry up to speed on its skilled labor needs, while the cost of doing business keeps going up.
The Cost Of Doing Business In The Industry
Since there is a shortage of skilled labor, construction companies are being forced to offer overtime, increase pay for salaried field workers, and find creative ways to maintain customer satisfaction or risk being left out of the construction boom. It is also important to remember that fuel costs are going up, vehicle and equipment maintenance costs are going up, equipment rental costs are going up, and administrative costs are also going up.
In the early days of the recovery, a construction company could pass most of these cost increases on to the clients without much problem. With the economy struggling again, it is not as easy to get customers to absorb the rising costs of construction. There is some relief in the fact that some key materials prices are dropping, but the overall effect is still an increase in the costs of doing business in the construction industry.
The issue construction companies are having is that they have to absorb these costs in the face of thinning profit margins. The problems with replacing skilled labor are not going away and they must be addressed if the industry is going to move forward and enjoy its growth. The costs are rising in the construction industry, but the profits are not. Does that mean that there is a possibility of layoffs in the future?
The Employment Picture In Construction
The jobs landscape in construction is extremely complicated. The lack of available skilled workers has caused companies to stop taking contracts and lay off workers. At a time when the construction industry should be experiencing job growth, it is actually losing jobs because it cannot find the skilled workers to keep up with the demand.
At this point, an increase in material costs is not going to cost the construction industry more jobs. The industry must continue to absorb the costs associated with hiring and training new workers if it is to have any chance of growing. Once the industry has solved the skilled worker issue, then it can and will start to hire laborers and other personnel to get jobs underway that have been waiting to start.
As the construction industry finds the volume of work increasing, it’s likely that it will continue to lose large amounts of jobs. There eventually has to be a point where the industry’s inability to take on more work will slip it back into a downturn that may last for years.
At this point, the construction industry is treading water and working hard to replace the skilled workers it lost in the 2008 recession. Even if it is successful in achieving the goal of bringing its skilled labor force back up to pre-2008 numbers, the growing need for construction services dictates that the industry must maintain its skilled labor hiring pace to be ready for the future.
The construction industry was a victim of its own success when its recovery came and it was not ready to accommodate the skilled labor needs of its customers. With profit margins shrinking, construction companies are investing millions in incentives to attract the current skilled laborers, and the necessary training methods to develop new ones.
The last thing the construction industry needs right now is to lose more workers at a time when the volume of work is increasing. Even though hourly wages and salaries are on the rise, the industry will continue to recruit new workers and carry on investing in its future to avoid another devastating collapse.