Construction Industry Trends: March 2023 Roundup

The banking system experienced a shock when Silicon Valley Bank and Signature Bank both failed earlier this month. The resounding impacts of one of the largest bank failures since the 2008 financial crisis have yet to be seen as analysts are still anxiously awaiting to see whether there will be an effect on other regional lenders and banking institutions of a similar size. Many were hoping that the news of these bank failures would result in the Federal Reserve pausing interest rate increases.

Key Takeaways: Since regional banks are significant sources of financing for commercial real estate projects, tighter capital could have a significant impact on the construction industry. While pausing interest rate hikes would have been good for risk markets and loosening capital, the Fed ultimately announced a .25 basis-point increase on interest rates last week in a move that indicates fighting inflation is still the priority. Given this current risk environment, traditional advice dictates the transfer of finances into investments that are less cyclical and more long-term. As fears of a recession loom large over investors, risky activities such as capital expenditures, M&A, and repurchases are going to be re-evaluated.

Amidst this economic uncertainty, the Department of Labor is promoting diversity initiatives—business as usual. The Labor Department is trying to diversify construction’s workforce to ensure equitable work opportunities ahead of the infusion of federal funding for infrastructure jobs from the Bipartisan Infrastructure Law. The DOL plans to support this effort by providing contractors with access to a more diverse pool of qualified workers according to a recent announcement last week.

To further assist project owners on the ground with their diversity hires, the Office or Federal Contract Compliance Programs (OFCCP) will offer ongoing assistance at no charge through the Mega Construction Project Program. Mega projects are defined as any project valued over $35 million over the course of at least a year and with at least some federal contribution to the funding of the project.

While the Mega Construction Project Program is new, there are already possible plans in the future to work with the Department of Commerce which has recently expanded its own opportunities for women in semiconductor manufacturing and construction. Under this initiative companies seeking more than $50 million in funding from the CHIPS program need to submit a plan to provide childcare to their workers.

The construction industry is experiencing high demand and a labor shortage at the same time. This shortage has persisted in the construction industry for some time as a large portion of the workforce increasingly reaches retirement age, but that has not made the situation any less avoidable as the number of workers with the licensed skills to replace them has grown at a slower pace. Despite the best efforts to open up new pools of talent with diversity initiatives, it will not be enough to fill the estimated 546,000 jobs needed in construction in 2023—especially as BIL funding begins to come through to start work on infrastructure projects.

Key Takeaways: Construction struggled throughout 2022 to hire as the industry averaged a record 390,000 job openings every month. The 4.6% unemployment rate in construction last year was the second lowest ever in the industry, but this means fewer workers looking for jobs and that the pool of workers to hire from is incredibly small. This is bad news as demand for labor is only expected to increase by 3,620 new jobs for every $1 billion in new construction spending. As infrastructure spending kicks in it will only exacerbate these issues, especially for construction companies seeking funding for megaprojects that may have additional diversity requirements in order to qualify.

Automation is being touted as the solution to the labor shortage as the construction industry is applying robotic technology in new ways to reduce the burden on human operators. Construction is using self-driving robots to deliver materials where they need to go on the job site, lay bricks, and put up drywall—they can even build entire homes.

Naturally, large-scale projects will be more capable of absorbing the costs of implementing some of the more costly automated technologies. The construction of dams, roads, and bridges has adopted robotic equipment faster than other smaller project types. The home-building industry has also been slow to adopt automation because there are still tasks that require the kind of fine motor control and decision-making ability that are more challenging for robots.

There is a concern, however, that these improvements to worksite productivity with automation will only lead to increased expectations for people working alongside robots that can still lead to burnout which actually makes work conditions more unsafe. Others are concerned that these robots could take away jobs from people, but that turning point may still be a ways off given how wide the hiring gap is in construction as the number of skilled workers is insufficient to fill the vacancies in the industry.

Key Takeaways: Even though automation sounds expensive, it can actually save on rising building costs by reducing skilled labor expenses and other costs associated with on-the-job injuries from performing more dangerous jobs that can now be done by robots. Automation can make the job site safer for everyone which is good for the aging construction population who must continue to work in sometimes deadly conditions.