We have all suffered through the shortages and supply chain disruptions the pandemic thrust upon the global economy and threw manufacturing and retail inventories into a tizzy. But we are now witnessing the easing of shortages as ports become unclogged, factory workers return to their production jobs, and trucking and rail is stabilizing.
For the aggregates industry, the shortages were evident across all manner of repair and replacement parts; but even more, other building materials shortages often had an impact on our industry’s customers who require a fluid and steady supply of all the individual materials incorporated in the variety of categories that result in a completed project, whether residential, commercial, industrial or public.
Survey Says. One of the very best surveys that takes a deep dive into all manner of building industry product inputs is the National Association of Home Builders’ NAHB/Wells Fargo Housing Market Index, or the well-known HMI that I have referred to in many prior columns, as I believe it is an important proxy for conditions in construction in general.
As recently as May of last year, it reported on historically widespread shortages of building materials that was widely published in the popular business press. But since then, most of the shortages have eased; the major exceptions being shortages of HVAC equipment and certain categories of ceramic materials (ceramic tiles, clay bricks and cement-based building materials), which have gotten slightly worse.
By way of illustration, as we learned in our own industry with new truck shortages, for example, trucks often sat at the factories waiting on chips, and then later wiring harnesses. Missing just one component like these that affects the delivery of a truck is an example of how a single product shortage can ripple through the production process, leaving it incomplete and undeliverable.
In a recent report, the NAHB explains it has been tracking shortages of building materials and products since the 1990s through special questions on the HMI survey, most recently in October 2022. At that time, over 80% of single-family builders reported either a serious or some shortage of three categories of building products: appliances (88%), transformers (86%), and windows and doors (83%).
Appliances and transformers are relatively new to the HMI survey, added in response to anecdotal comments fielded by NAHB over the past two years. Shortages of HVAC equipment were also relatively widespread in October, reported by 76% of single-family builders. Overall, half or more of all builders reported shortages of 17 of the 25 building products listed in the October 2022 survey.
Not as Severe. Although these shortages may seem severe and broad-based, they are generally not as severe as they were the last time NAHB collected similar information in May 2021. Between then and October 2022, the incidence of the shortage fell for 18 of the 24 listed products and materials (transformers were not covered in the 2021 survey). The decline in the share of builders reporting a shortage ranged from 3 percentage points (from 63% to 60%) for cabinets, to a massive 59 points (from 92% to 33%) for OSB.
The HMI survey in general shows the availability of lumber products improving markedly since May 2021, which is consistent with the concurrent declines in lumber prices. As reported in December, as of November the seasonally adjusted Producer Price Index for softwood lumber had declined in seven of the previous eight months.
Shortages of a handful of building products actually became slightly worse between May 2021 and October 2022. The share of builders reporting a shortage of HVAC equipment increased by 8 percentage points (from 68% to 76%), but in the all-important products for our industry’ pull-through, cement and ready-mix concrete, shortages each increased by 6 percentage points. This is consistent with the rapid increase in the price of ready-mix concrete, also reported in December.
We predict that shortages affecting project completions will continue to ease in 2023, even though missing one component in a project can throw the schedule off completely.
This month, the AVP Pulse Index – our new information chart that illustrates the health of the industry in one single trend line –reflects a slight, but continued, monthly move upwards that reinforces our view that the construction economy remains resilient in the face of continued headwinds in other parts of the economy.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @allenvillere.