The Marcum Commercial Construction Index for the second quarter of 2021 reports that the construction industry has lagged the broader rate of economic recovery. Nonresidential construction spending is 6.6 percent lower in June 2021 than it was in June 2020, and the industry continues to be plagued by worker shortages.
The index is produced by Marcum LLP’s national Construction Services group.
“Though nonresidential construction employment expanded in July on both monthly and year-ago bases, the industry has generally not been associated with job growth in recent months,” said Anirban Basu, Marcum’s chief construction economist and author of the survey. “Despite elevated demand for skilled workers, data are consistent with the notion that construction workers continue to retire in large numbers and that some are being lured away by other industries.”
Dr. Basu points out that, as was the case in the first quarter, the residential sector continues to outpace its nonresidential counterpart. “Residential spending is up 31 percent since the end of 2019,” he said. “This is in part a reflection of elevated softwood lumber prices and other input prices. It is also a reflection of the fact that more homes are being built… To ramp up production, residential builders are scooping up human capital. As of July 2021, residential construction employment was up 6 percent year-over-year, well above the 1.2 percent growth observed in the nonresidential segment.”
Inflation continues to be an issue for both the construction industry and broader economy, and Dr. Basu warns that contractors should take steps to mitigate these risks. “Elevated inflation is likely to persist into 2022 as global suppliers continue to struggle to keep up with elevated demand for goods and services. Additional fiscal stimulus renders this outlook even more probable. Accordingly, contractors should assiduously work contingencies into their contracts to protect themselves from additional materials’ price spikes. Given that construction firm services are in high demand and that backlog remains high, contractors should have enough negotiating leverage to accomplish that under most circumstances.”
Marcum is optimistic about the construction industry but warns that the delta variant has clouded the economic outlook. “Were it not for the Delta variant, one would simply forecast a booming economy in 2022,” said Dr. Basu. “To be sure, the dynamic equilibrium is associated with some unpleasantness, including input and labor shortages as well as rapidly rising prices, but the overall picture remains generally positive for America’s construction industry.”
One of the leading construction accounting firms in the U.S., Marcum LLP’s Construction Services group provides audit, consulting, and taxation services to clients ranging from start-ups to multi-billion-dollar enterprises. The group’s professionals, among the country’s foremost experts in construction accounting, are frequent industry authors and speakers and serve as technical reviewers for the AICPA’s construction audit and taxation guides. Marcum’s construction group also publishes several definitive industry resources – including the annual Marcum National Construction Survey, the quarterly Marcum Commercial Construction Index, the Marcum PAS Contractor Compensation Quarterly, and the annual Marcum JOLTS Analysis of construction employment trends – and presents an ongoing series of industry summits and technical webinars focused on the unique needs of construction contractors.