As we leave 2021 behind, it’s a good time to look closely at the construction industry’s economic outlook for 2022. From what we were challenged by last year to what opportunities lie ahead, there’s a lot to takeaway from this special episode.
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On this podcast episode
This week we turn to Richard Branch, Chief Economist at Dodge Data & Analytics and anchorman for the prestigious and widely-circulated Dodge Construction Outlook. In this episode, he highlights some of the challenges and opportunities the industry will face in the coming year.
- Which construction sectors can expect the most growth and opportunity in the United States
- Guidance on how to tackle the biggest challenges facing the construction industry
- How the newly passed infrastructure bill will impact the industry outlook
“In order to take advantage of the opportunities and mitigate the risks, you’re going to have to be very nimble, very flexible, and able to pivot almost at a moment’s notice.” — Richard Branch
What’s the state of the industry right now?
In order to forecast what’s ahead, we first need to take a good look at the current state of the industry in the US.
The conversation started with a quick recap of the previous two years. Richard says that while the pandemic hit the industry hard in early 2020, the construction sector slowly began to recover later that year.
In 2021, that recovery continued to gain hold, in spite of recovery being rather uneven across construction sectors. For instance, while demand for single-family construction and fulfillment centers surged, other areas didn’t experience the same growth.
That said, Richard expects things to balance out in 2022.
“It’s still fairly uneven at this point,” he says. “But I would say the momentum is slowly turning much more positive.”
Regardless of how your organization performed in the past few years, the key to staying competitive in 2022 is to optimize what Richard calls your “3 P’s”: people, prices, and productivity.
Let’s explore these areas in more detail below.
People: combating the labor shortage
Like many industries today, construction is grappling with a labor shortage problem. According to Richard, the “quit rate” in construction is outpacing the rate at which new jobs are created, which means the worker shortage is increasing.
“In 2019, there were about 400,000 to 420,000 open positions in the construction sector. That’s essentially where we’re sitting today. So it’s climbed back to where it was prior to the pandemic.”
— Richard Branch, Chief Economist, Dodge Data & Analytics
This issue, he says, is systemic and is also related to demographic changes in society.
The good news is that there are steps we can take as an industry to overcome these labor challenges.
“I do think the construction sector has worked hard to combat this issue in terms of working with schools, community colleges, and universities. However, I think it needs to be a more concerted effort that’s made across the industry.”
On a societal level, he says that teachers, parents, and governments must do a better job communicating the diverse and interesting opportunities that the construction industry offers.
We need to emphasize that these days, construction isn’t just about placing bricks on top of each other; new technologies—such as drones, 3D printing, and virtual reality—play a big role in today’s industry. Ensuring that young folks are aware of these things can help draw them into the field, says Richard.
Prices: mitigating rising costs
On the pricing side, Richard points out that costs are still pretty high. “The federal government released the updated producer price index data, and it showed that the producer price index for construction materials was 35% higher than it was a year ago. That’s the fourth consecutive month where that year-over-year comparison has been over 30%.”
Shortages, which started with lumber, have spread into metals, plastics, “and just about everything that the construction sector touches,” he adds.
There is a silver lining in that production plants have started opening back up.
“Plants are slowly getting back to the levels of operation that they had prior to the pandemic. So there’s more supply, slowly making its way back out into the market. Now, as long as we start to see some improvements on the ports, the shipping, and logistics side of the world, that should lead to prices starting to cool in the back half of 2022.”
In the meantime, construction professionals can mitigate the risks and costs associated with supply management by being aggressive and creative with their sourcing strategies.
“Think outside the box in terms of where you traditionally get your materials and goods and where you could get them from,” advises Richard.
Beyond that, it’s a chance to bring more innovation into building designs.
“A real opportunity here is for companies to invest in research and development, to find new and different materials that will help the construction industry broaden the supply of things we can use to build the structures, roads, and bridges that we need.”
Productivity: doing more with less
Productivity will continue to be top of mind in 2022. Profitability will likely be a challenge, which is why AEC professionals need to “do more with less,” says Richard.
According to him, this can be accomplished by using “technology that helps enhance and improve the communication from the jobsite back to the office.”
“Tools that enable you to make smarter decisions in real-time will be essential in the year ahead,” he adds.
Another important consideration is data. Construction firms are overwhelmed with information. Staying on top of data and analytics can be a real competitive advantage.
Recommended reading: Discover a report, and the underlying research, that reveals how data strategy is a key advantage for construction firms.
“There are external metrics, like economic data, materials, prices, even traffic flows in and around your jobsites. Then there’s also internal data—like past job performance, HR safety, etc. There are numerous data points that we’re trying to coalesce and use to make decisions. So it’s critical for companies to invest in platforms that can help harness that data and turn it into predictive analytics.”
He continues, “I think optimizing data and analytics is a critical and low hanging fruit to improving productivity. And if you improve productivity, your profitability should increase as well.”
What does construction in 2022 look like?
In 2022 (and beyond), the US AEC industry will be influenced by two important components: new legislation (such as the Infrastructure Investment and Jobs Act) and technology. In this episode, Richard spent time explaining how these factors would impact construction professionals.
The Infrastructure Investment and Jobs Act
The Infrastructure Investment and Jobs Act is “an absolute game changer in this sector,” he remarks.
“It’s really the largest investment in public works activity this country has seen in close to 50 years. And it’s a significant down payment on improving roads, bridges, water, and sewer systems across the country.”
The new legislation is certainly a big deal, but it’s important to note the real impact of the Infrastructure Investment and Jobs Act will materialize after 2022.
“We’re really looking at ’23, ’24 and even into 2025 to when the real meat of those dollars will start making their way into the system. Of course, that trajectory or those expectations certainly need to be viewed through the filter of those challenges that we just discussed. Changes in prices, people and of course, productivity could certainly alter that expectation as we look forward to next year.”
On the technology front, Richard reiterates the importance of having tools that enable people to harness data and analytics.
“There’s a lot of innovation and return for a little bit of investment here in terms of harnessing the value of predictive analytics and artificial intelligence. And the great thing is that those tools are widespread and easy to use.”
Richard also points out that technology shouldn’t be viewed as a threat to workers.
“Nothing will replace a master craftsperson in terms of a mason, a plumber, or an electrician. Nothing will replace that, but if we can supplement it, that’s certainly good news.”
— Richard Branch, Chief Economist, Dodge Data & Analytics
In fact, technology can—and should— be used to bring fresh talent into the industry. “Whether it’s VR or drones, tech is a surefire way of attracting younger folks into this sector. We need to be investing in these technologies to bring folks in.”
Ready for 2022?
Regardless of what the future holds, the key to thriving in the year ahead is to be flexible.
“There’s a lot of moving pieces on the chess board right now,” says Richard. “In order to take advantage of these opportunities and mitigate the risk, you’re going to have to be very nimble, flexible, and able to pivot almost at a moment’s notice.”
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The Digital Builder podcast is hosted by me, Eric Thomas. New episodes go live every two weeks.
If you’d like to hear Richard’s full outlook for 2022, catch the full episode of Digital Builder to learn more.
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