Construction Cost Impacts Report - October 2023
As we approach the end of the fourth year since the U.S. construction industry began experiencing unparalleled volatility in materials costs, supply-chain bottlenecks, and a tight labor market, overall inflation rates and economic growth have cooled, while congestion at West Coast ports has eased.
These changes have led some to assume that construction costs and completion times must also have improved. Unfortunately, this is not the case for many projects, materials, and subcontractors. 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 2.1 percent in 2023 and 1.3 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 3.7 percent for the 12 months ending September. 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 October 2023*)
The are supply chain has improved but there are still products that are in short supply, cement and electrical transformers as two examples. Even if materials are available, subcontractor bids are still short-lived. Managing supply chain has now become routine on project sites.
Read the full report here: XL Construction_Construction Cost Impacts_ October 2023 Issue 22