Contractors report less availability of building materials as pandemic continues

More contractors are facing a shortage of building materials as the pandemic continues, according to new fourth quarter data from the U.S. Chamber of Commerce Commercial Construction Index.

This quarter, 41% of contractors say less availability of building products and materials is a severe consequence of the pandemic, up from just 15% saying the same in the third quarter.

Most contractors ”“ 71% ”“ say they face at least one material shortage, up from 54% in Q3. The most reported material shortage is wood/lumber, which has seen higher demand from a boom in residential construction during the pandemic.

According to the chamber”™s latest survey, 31% of commercial construction contractors report a shortage of lumber, up from 11% last quarter. Of those contractors experiencing shortages, 89% say it is having a moderate to high level of impact on their business, up from 75% saying so last quarter.

Despite growing concern over material shortages, the overall index score this quarter rose slightly to 60, up from 57 in Q3. All three of the index”™s main indicators rose: Contractors”™ confidence in new business opportunities over the next year inched up one point to 57; revenue expectations increased four points to 52; and backlog rose two points to 70.

Nevertheless, despite the gains, the index remains significantly below the score of 74 from the pre-pandemic first quarter.

“The pandemic has exacerbated issues contractors were already facing in availability and cost of materials from tariffs and a shortage of skilled workers,” U.S. Chamber of Commerce Executive Vice President and Chief Policy Officer Neil Bradley said in a statement. “But there”™s reason for optimism. More than one in three contractors plan to hire more workers in the next six months and most see sufficient new business in the coming year.”

“The industry is a positive indicator of where the rest of the economy is going, but it”™s likely confidence won”™t fully return until companies and workers have the confidence to get back to work safely,” Bradley said. “That”™s why the U.S. Chamber is urging lawmakers to come together before the end of the year on additional pandemic relief.”

Despite ongoing uncertainty over the future of commercial construction, contractors signal that they are cautiously optimistic about their medium to long term prospects. Most (85%) report a moderate to high level of confidence in the construction market to provide enough new business in the next 12 months, up from 83% in Q3, and up from 75% in Q2.

While the majority (61%) of contractors expect their revenue to remain about the same over the next year, more (25%) expect an increase, up from 22% in Q3, and fewer (14%) expect a decrease, down from 19% in Q3. Additionally, 20% of contractors expect to see profit margins increase over the next year, compared to 17% last quarter.

Material costs concerns remain high 
More contractors (36%) plan to spend more on tools and equipment in the next six months, up from 30% in Q3, but concern about fluctuations in the cost of building materials remains high. Most (74%) contractors indicate cost fluctuations have a moderate to high impact on their business, up from 63% in Q3.

Of those who said the fluctuations have a considerable impact, 61% said wood/lumber is the product of most concern, up from 21% in Q3, followed by steel (30%). Meanwhile, a quarter (24%) of contractors say steel and aluminum tariffs will have a high degree of impact on their business in the next three years, down from 29% in Q1 and from 40% in Q4 2019.

Additional findings:

• A shortage of skilled labor is creating challenges. Most (83%) contractors report moderate to high levels of difficulty finding skilled workers. Of those, 83% are asking skilled workers to do more work, 71% report struggling to meet schedule requirements and 39% are turning down work.

• Contractors are more decisive on hiring plans. More contractors (37%) indicate they plan to employ more people over the next six months, up five points from 32% in Q3. Meanwhile, 12% expect to reduce their staffing, also up five points from 7% in Q3.

• 83% of contractors are experiencing project delays due to Covid-19. Contractors report the average share of delayed projects is 26%. Looking ahead six months, that drops to 18%.

• 64% say worker health and safety remains a top concern for their business, followed by more project shutdowns/delays (53%), and less availability of building products and materials (41%).

The index comprises three leading indicators to gauge confidence in the commercial construction industry, generating a composite Index on the scale of 0 to 100 that serves as an indicator of health of the contractor segment on a quarterly basis.

The Q4 2020 results from the three key drivers are:

• Backlog: This indicator increased by two points to 70 (from 68 in Q3).

• New Business Confidence: The overall level of contractor confidence increased to 57 (up one point from Q3).

• Revenue: Contractors”™ revenue expectations over the next 12 months increased to 52 (up 4 points from Q3).

The research was developed with Dodge Data & Analytics (DD&A).