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US construction outlook highest since 2019, but labor and materials costs project to be impediment

by Lisa Pollinger
February 14, 2022
in Business & Legal
RWES RWES RWES

US construction outlook highest since 2019, but labor and materials costs project to be impediment

  • Infrastructure to play key role in driving activity
  • Headwinds continue to be driven by materials and labor
  • Increasing numbers of firms expect to hire more
  • Increase in skilled labor costs is likely to be 5-6%
  • Increase in material costs is likely to be 8%
  • Increase in constructions costs to outstrip increasing bid costs
  • Sentiment is mixed on profits outlook

US RICS Construction Survey – Q4 2021

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Feedback from respondents based in the United States suggests that activity in the construction industry is continuing to gain momentum. The headline Construction Activity Index (CAI) for the US rebounded to its best level since the fourth quarter of 2019.

Infrastructure to play key role in driving activity
While infrastructure workloads have grown relatively strongly in each case, forward-looking sentiment is pointing to an acceleration of activity. Interestingly, in the US, information and communications technology is seen as likely to be a driver of much of the infrastructure work. Equally striking, while residential workloads are viewed as likely to remain buoyant throughout the course of this year, respondents foresee non-residential work also gaining momentum, despite the structural challenges facing both the office and retail sectors. Significantly, new business enquiries are showing positive prospects as well.

Headwinds continue to be provided by materials and labor
The US industry is continuing to highlight concerns about both the availability and the cost of building materials. Additionally, concerns continue to be expressed about labor supply and, more specifically, skilled labor. Approximately three-quarters of respondents identified the shortages of skilled trades as a critical issue, with approximately two-thirds drawing attention to challenges around the recruitment of quantity surveyors and project managers.

Expectations about hiring over the next 12 months are nevertheless still strong, with numbers showing firms looking to expand their teams. These ambitious plans are likely to result in further upward pressure on wages. Projections from respondents suggest that the increase in skilled labor costs is likely to be in the region of 5 to 6% over the next year.

Sentiment remains mixed on profits outlook
There appears greater reason for encouragement regarding the picture for profits in the US. 12-month expectations climbed significantly in the last quarter, but when respondents see construction costs as outstripping increases in bidding prices. Material costs are seen as particularly significant in influencing this, estimated to rise by 8% according to US respondents.

Simon Rubinsohn, RICS Chief Economist, said: 

Construction activity in North America remained firm into the year-end according to the feedback received from survey respondents, with expectations for 2022 strongly positive in the US. Predictably, infrastructure is viewed as likely to play a particularly important role in driving workloads, reflecting the initiatives taken by the administration in response to Covid pandemic.

However, it is significant that acceleration in activity through the year is actually viewed as being pretty broadly based with both residential and non-residential construction also set to see strong growth. Unsurprisingly, there are significant concerns around the cost and availability of key building materials as well as the requisite skilled labor to meet these ambitious plans. The challenges around recruitment of white collar as well as skilled trades is very much to the fore as an issue for the industry.


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