These changes are beginning to reduce the volatility in bid pricing and there has been an improvement in the duration trade partners are prepared to hold their bids. As central banks continue their campaigns to slow inflation, both the U.S. and Europe are likely to avoid recessions. Using the annual-average over annual-average computation, the third quarter forecasts have been revised upward with expected real GDP to grow at an annual rate of 2.4 percent in 2023 and 0.9% percent in 2024. These annual projections are higher than the previous estimates of three months ago. Upward price pressure remains for many key construction materials. Although some materials have decreased in price recently, they are still year-over-year increase in the range of 7% – 9%. The economic slowdown is expected to continue into 2024. The CPI all-items index increased 3.1percent for the 12 months ending November. The 2023 CPI is expected to average 4.3% and will lead to a push for higher wages.
The primary underlying causes of these issues include:
- Labor shortages – continuing issue of attracting and retaining workers
- Raw material shortages – shortage of one ingredient can stop or limit production.
- Transportation issues – demand for container shipping and trucking have outstripped supply, together with truck driver shortages.
- Production times – just-in-time production has been severely impacted.
- Energy disruptions – the rapid rise in the cost of diesel fuel.
- Ukraine/Russia War – both countries are major suppliers of base metals to the world market and the supply of these metal has been severely disrupted.
Supply Chain Impacts (as of December 2023*)
The supply chain has improvements, but there are still products that are in short supply, copper, air sourced heat pumps, air handling units and electrical transformers as examples. Managing supply chain has now become routine on project sites.
Read the full report here: XL Construction_Construction Cost Impacts_Issue 23