Rebuilding America Starts With Rock.
By Mark S. Kuhar and Josephine Patterson
As 2021 becomes 2022, the aggregates industry is looking forward with great optimism. The passage of the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) – a once-in-a-generation bipartisan infrastructure bill – will do that.
While the IIJA no doubt signals a vibrant future for the industry there will be growing pains and bumps in the road going forward. Rising costs, skilled labor shortages and lack of materials will continue to create challenges for the construction industry, according to the U.S. Chamber of Commerce.
“With the passage of a once-in-a-generation investment into our infrastructure network, everyone in the industry has a reason to celebrate,” said Michael Johnson, president and CEO of the National Stone, Sand & Gravel Association (NSSGA). He told Rock Products, “I know all of our members look forward to meeting the increased demand for aggregates and resilient construction materials. Therefore in 2022, NSSGA will continue to advocate for regulations that are reasonable and based on sound science. We will continue to provide new resources on pressing topics from workforce development, safety and environmental issues. NSSGA will ensure our members are fully prepared to tackle any challenge, so they can safely and efficiently produce the materials that our country is asking for.”
The aggregates industry delivers as the construction industry goes. So when Dodge Construction Network hosted its 83rd annual Construction Industry Outlook event for 2022, the aggregates industry was listening. This event revealed exclusive industry insights regarding construction and what is in store for 2022. As the industry continues to rebound and bounce back from the COVID-19 pandemic, it remains clear that the pandemic has forever changed the construction landscape.
In his opening remarks, Dodge Construction Network’s Chief Executive Officer Dan McCarthy said, “We’ve come to realize it won’t be ‘construction after COVID,’ but ‘construction and the impact of COVID.’”
Dodge Construction Network’s Chief Economist Richard Branch shared that the dollar value of construction starts will increase 6% in 2022. Branch emphasized that, while residential construction will continue to play a large role in next year’s growth, a more balanced recovery in the nonresidential sector will begin – particularly as funding from the recently passed infrastructure package begins to enter the market. Alone, the total non-building value forecast of 32.5% year-over-year growth from 2021 to 2026 would instead be 14.9% without the bill’s passing.
Branch theorized that there are three main challenges that will impact the construction sector over the next year: price, people and productivity. These “triple P’s,” as Branch called them, will noticeably impact construction starts in 2022.
“All those projects sitting in planning are taking longer to get through, and while construction starts will grow in 2022, that growth is expected to be modest,” Branch said. “…it’s very clear, as we put all of this together, that if not for the challenges, shortages and prices that we’re currently facing, construction activity would be much stronger than it currently is.”
The labor shortage continues to impact almost every industry, not just construction. Construction employment increased by 31,000 jobs between October and November as nonresidential construction firms added workers for the third month in a row, according to an analysis by the Associated General Contractors of America (AGC) of government data. Association officials said construction firms were likely to have added even more jobs if they could find more qualified workers to hire with many firms reporting a growing number of unfilled positions.
“It is heartening to see steady job growth across all construction segments following a long period during which only residential contractors were adding employees,” said Ken Simonson, the association’s chief economist. “But record job openings show the industry needs still more workers as more types of nonresidential projects get started.”
Construction employment in November totaled 7,533,000, an increase of 31,000 since October and the highest seasonally adjusted figure since March 2020. However, industry employment still trails the pre-pandemic peak, set in February 2020, by 115,000 positions.
Branch fears that high material costs may not see resolution in 2022.
“From an operating perspective, plants are very slowly getting back to normal,” Branch stated. “But, we’re still dealing with trucking issues, we’re dealing with port issues, so I think the inflation we’re dealing with here in the construction sector, as it relates to materials and prices, is probably going to last into mid next year before we start to see prices pull back. But, even as those prices start to pull back or the inflation slows in the back half of 2022, that level of prices should remain fairly high, at least through the end of next year.”
The combination of these two aforementioned problems spearheads into what Branch thinks might be the most important problem to tackle in 2022: productivity.
“In a world where prices are rising, materials are hard to come by, and labor is scarce, the ability to do more with less is what’s going to be a critical path forward, in terms of increasing your profit margins,” Branch stated.
Improvements in productivity are not as simple as some may think. Productivity needs to improve at all levels within an organization, not just on-site technological advancements and adoptions.
“Productivity enhancements are not just always about on the job changes,” Branch said. “Many companies have made great strides, in terms of collecting and utilizing data within their own activities. So far though, comparatively few of those have been able to bridge, or make that full potential between their own internal data services and data provided by third parties or vendors or private data sources.”
In its Transportation Construction Market Outlook 2022-2026, the American Road & Transportation Builders Association’s Senior Vice President and Chief Economist Dr. Allison Premo Black predicted that the total value of transportation-related construction work will grow from $148.4 billion in 2021 to $155.6 billion in 2022. Public highway, street and related construction will grow from $74.8 billion in 2021 to $78.3 billion in 2022, a 5% increase.
IIJA funding will support new projects. The 2022 impact of those funds will depend on how quickly states obligate and award projects in the first half of the year. States will also have access to nearly $10 billion in supplemental highway funds through the 2018-2021 appropriations process and an additional $10 billion in COVID-19 relief funds.
States and local tax revenues will continue to improve, and transportation revenues from highway user fees are also expected to continue to improve, Premo Black noted.
Aggregates production has been on the increase and that pattern is certain to continue. An estimated 731 million metric tons (Mt) of total construction aggregates was produced and shipped for consumption in the United States in the third quarter of 2021, an increase of 4% compared with that in the third quarter of 2020.
The estimated production for consumption in the first nine months of 2021 was 1.90 billion metric tons (Gt), an increase of 5% compared with that in the same period of 2020, according to Jason Christopher Willett, commodity specialist, National Minerals Information Center, U.S. Geological Survey (USGS).
The estimated production for consumption of construction aggregates in the third quarter of 2021 increased in seven of the nine geographic divisions compared with that sold or used in the third quarter of 2020.
The five leading states were, in descending order of production-for-consumption, Texas, California, Missouri, Ohio and Florida. Their combined total production for consumption was 220 Mt, an increase of 6% compared with that in the same period of 2020.
The five leading states combined total production for consumption in the first nine months of 2021 was 580 Mt, an increase of 4% compared with that in the same period of 2020 and represented 31% of the U.S. total.
An estimated 436 Mt of crushed stone was produced and shipped for consumption in the United States in the third quarter of 2021, an increase of 4% compared with that in the third quarter of 2020. The estimated production for consumption in the first nine months of 2021 was 1.14 Gt, an increase of 3% compared with that in the same period of 2020.
The estimated production for consumption of crushed stone in the third quarter of 2021 increased in seven of the nine geographic divisions compared with that sold or used in the third quarter of 2020.
The five leading states were, in descending order of production for consumption, Texas, Missouri, Pennsylvania, Florida and Ohio. Their combined total production for consumption was 152 Mt, an increase of 4% compared with that in the same period of 2020.
The estimated U.S. output of construction sand and gravel produced and shipped for consumption in the third quarter of 2021 was 294 Mt, an increase of 4% compared with that in the third quarter of 2020. The estimated production for consumption in the first nine months of 2021 was 753 Mt, an increase of 7% compared with that in the same period of 2020.
The estimated production for consumption of construction sand and gravel in the third quarter of 2021 increased in four of the nine geographic divisions compared with that sold or used in the third quarter of 2020.
The five leading states were, in descending order of production for consumption, California, Texas, Minnesota, Michigan and Arizona. Their combined total production for consumption was 102 Mt, a slight increase compared with that in the same period of 2020.
The above estimates are based on information reported to USGS on its quarterly sample survey by construction aggregates producers.
Portland (including blended) cement consumption increased slightly in the third quarter of 2021 compared with that of the third quarter of 2020. Consumption in the first nine months of 2021 increased by 4% compared with that in the same period of 2020. This information was obtained from the USGS monthly survey of U.S. cement producers.
Construction spending during October 2021 was estimated at a seasonally adjusted annual rate of $1,598.0 billion, 0.2% (±1.2%) above the revised September estimate of $1,594.8 billion, according to the U.S. Census Bureau. The October figure is 8.6% (±1.3%) above the October 2020 estimate of $1,471.7 billion.
During the first 10 months of this year, construction spending amounted to $1,323.1 billion, 7.5% (±1.0%) above the $1,230.8 billion for the same period in 2020.
In October, the estimated seasonally adjusted annual rate of public construction spending was $353.0 billion, 1.8% (±2.0%) above the revised September estimate of $346.8 billion. Highway construction was at a seasonally adjusted annual rate of $102.5 billion, 2.4% (±4.9%) above the revised September estimate of $100.1 billion. Educational construction was at a seasonally adjusted annual rate of $82.2 billion, 0.2% (±2.0%) above the revised September estimate of $82.0 billion.
Spending on private construction was at a seasonally adjusted annual rate of $1,245.0 billion, 0.2% (±0.7%) below the revised September estimate of $1,247.9 billion.
- Residential construction was at a seasonally adjusted annual rate of $774.7 billion in October, 0.5% (±1.3%) below the revised September estimate of $778.6 billion.
- Nonresidential construction was at a seasonally adjusted annual rate of $470.3 billion in October, 0.2% (±0.7%) above the revised September estimate of $469.4 billion.
“It is encouraging to see such a broad-based pickup in spending on nonresidential projects in the latest month,” said AGC’s Simonson. “But the construction industry still faces major challenges from workforce shortages and supply-chain bottlenecks.”
Association officials said that spending on many categories of public construction is likely to increase soon as the investments from the Bipartisan Infrastructure bill begin to flow. But they cautioned that the supply chain challenges and labor shortages were impacting construction schedules and budgets and prompting some owners to delay or cancel projects. They urged the Biden administration to explore new ways to relieve shipping delays and to invest more in career and technical education programs that serve as a pipeline into construction careers.
“On the surface, there is much to be encouraged by in October’s construction spending data,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Nonresidential spending is now at its highest level since July 2020 and has rebounded 3.1% since bottoming out in June 2021. Nonresidential spending expanded meaningfully for the month and those gains were spread across most subsectors. Data characterizing the two prior months were upwardly revised by a combined $27 billion, or 1.7%.
“The bottom line is that 2022 should be an excellent year for nonresidential construction,” said Basu. “Performance will be led by public construction, especially in the context of a recently passed and large infrastructure package. Among the segments that are set to zoom ahead are roads and bridges, school construction, water systems, airports, seaports and rail. Traditional office and lodging construction will likely remain weak in much of the nation, however.”
Total construction starts fell 14% in November to a seasonally adjusted annual rate of $867.8 billion, according to Dodge Construction Network. Nonbuilding and nonresidential building starts bore the brunt of the decline, falling 30% and 21%, respectively, after seeing sharp increases in October as three large projects broke ground. Residential starts gained a modest 3%. Without October’s large projects, total construction starts in November would have increased by 5%.
Highway and bridge starts gained 11%.
“Large projects aside, the underlying trend continues to point to a modest recovery in construction starts,” stated Dodge’s Branch. “However, even as projects continue to move forward, the short-term outlook remains cloudy due to continued escalation in material prices and labor shortages. While construction should see some reprieve in 2022, these challenges will restrain the industry’s ability to fully capitalize on both the large number of projects in planning and funding resulting from the infrastructure package. The result will be moderate growth in construction starts over the near-term.”
- Nonbuilding construction starts dropped 30% in November to a seasonally adjusted annual rate of $188.1 billion. This decline in activity followed a strong October, which included the groundbreaking of an $8.5 billion LNG export facility. With that project removed from the data, November starts would have increased 13%. November’s miscellaneous nonbuilding category jumped 70%, while as previously stated, highway and bridge starts gained 11%. However, environmental public starts lost 14%, and starts of utilities/gas plants fell 69%. Year-to-date, total nonbuilding starts were 1% higher than a year earlier through November. Environmental public works were 19% higher, and utility/gas plant starts were up 15%. Highway and bridge starts were 7% lower and miscellaneous nonbuilding fell 15% during the first 11 months of the year.
- Nonresidential building starts lost 21% in November, falling to a seasonally adjusted annual rate of $281.1 billion. This decline is due to the start of two large manufacturing projects beginning in the previous month. Without these two projects in the data, nonresidential building projects would have increased 5% in November. In November, commercial building starts fell 10%, with only parking structures and warehouses showing small gains. Manufacturing fell by a sharp 96%. Institutional starts, by contrast, gained 28%, with all categories rising. In the first 11 months of 2021, nonresidential building starts were 11% higher. Commercial starts increased 7%, manufacturing starts were 86% higher, and institutional starts were up 5%.
- Residential building starts rose 3% in November to a seasonally adjusted annual rate of $398.6 billion. Multifamily starts moved 16% higher, while single-family starts slipped 2%. Through the first 11 months of 2021, residential starts were up 20% over the same period one year ago. Single-family starts gained 20%, and multifamily starts rose 23%.
Regionally, total construction starts improved in the Northeast and Midwest regions but fell in the South Atlantic, South Central and West regions.