Construction underway on the new Chen Neuroscience Research Building at the California Institute of Technology, May 2019 (Antony-22/CC BY-SA 4.0)

Markets

Rising costs hit US construction, Mace reports

17 September 2019 | By GCR Staff | 0 Comments

Labour shortages in the US are helping to push up cost inflation there at a rate of 4%, according to the latest North American market analysis by UK-headquartered consultancy, Mace.

The company said momentum waned in the US construction industry in the second quarter of 2019.

Buoyed by strong private sector investment, the US economy grew at an annual rate of 3.1% in the first quarter, but trade tensions with China and a cooling in global growth slowed the rate of expansion to 2.1% in Q2.

Persistent growth in the cost of delivering construction projects will challenge construction companies and supply chains in North America– Greg Parker, Mace

Mace said GDP is expected to grow by 2.4% this year, before expansion slows to 1.6% in 2020 and 1.8% in 2021, which suggests a more muted outlook for the US construction industry.

Behind the overarching trend, dynamics vary widely among states, creating a mixed picture across the country (see snapshots below).

Strong demand and rising construction costs are creating a challenging procurement landscape in busier states, while supply chain capacity is returning in other states.
 
Rapidly rising material and labour costs are causing difficulties across the industry in North America. Tariffs on steel and aluminium created extra inflationary pressure in recent quarters.
 
Mace said the Federal Reserve’s decision to cut interest rates in July emphasised the country’s economic volatility. The central bank is now deciding whether or not to make further cuts.

“Persistent growth in the cost of delivering construction projects will challenge construction companies and supply chains in North America in the coming months,” said Greg Parker, Mace’s managing director for North America. “Carefully designed, well informed procurement strategies can help clients to overcome some of these risks.”

Mace provided snapshots for key regions:

  • New York: Buoyant leasing activity keeps contractors busy; construction set to strengthen 2020 to 2021
  • Pennsylvania: Moderate building cost and wage inflation; contractors busy but only few operating at full capacity
  • California: Strong demand fuelling construction cost inflation; escalation rates are high and rising
  • Chicago: State of Illinois suffered three years of declining building activity, but capacity is coming back on stream and appetite to tender is strong
  • Texas: Bright outlook for construction underpinned by strong economic and employment growth; construction sector set to grow 8.8% through to 2021.

Image: Construction underway on the new Chen Neuroscience Research Building at the California Institute of Technology, May 2019 (Antony-22/CC BY-SA 4.0)