“Life is what happens when you’re making other plans.” The economic issues facing the world of electrical construction are always complex but not usually this unpredictable. This global volatility shows up in surveys such as the Purchasing Managers’ Index and much of the data coming from federal sources, including the Federal Reserve and Labor Department. As of this writing, the world is trying to determine when there might be a return to some sense of normalcy in the oil markets.

The basic problem is that many sectors are just stuck in a “wait and see” position. The price per barrel of oil jumps from $70 to $120 in a couple of days and then falls back again. Freight costs are headed back to the bad old days of the pandemic year; container prices are up by 62% in just a month. That has had a profound impact on all sectors of construction and manufacturing. Despite all this chaos and uncertainty, there are some hints of good news.

The good

We can start on the capacity front. This is a measure of how efficiently a company is performing, and it becomes a shorthand means by which to judge whether there is solid business growth. Ideal capacity use is between 80% and 85%, as this signals there is little slack in the operation and little indication of bottlenecks. 

Nationally, the level of capacity use has been in the low 70s. That is a bit higher than it was earlier in the year. When use is under 80, there is relatively little purchasing of new equipment and reduced hiring. When it crests over 85, there will be shortages and stress, but that also triggers more acquisition and more employment to meet demand. 

Another solid indicator for business is the new order levels. It is one thing to keep responding to existing customers, but gaining new orders is a sign of growth and expansion. New order activity increased by 42.66% in the last quarter—a faster pace than the previous one. Another 40.22% saw their new order activity remain stable. Only 17.12% saw that activity decline. Given all the stress from inflation and the upsets in the supply chain of late, these are very good numbers. New order activity is tracked in a variety of ways—everything from the data collected in the Purchasing Managers’ Index to more industry-focused studies.

There has also been some good news as far as employment is concerned, although lately the numbers have been weaker than expected. The labor situation for manufacturers and construction has been complex for many years. By now you have heard economists that threaten the “mother of all recessions” by 2030. Predicting that far out is next to impossible, so what they are really warning of is a demographic meltdown as every Boomer reaches retirement age (all 72 million). There is already a labor shortage, and it stands to get worse as there are just too few people with the needed skills. 

In a recent survey of small and medium-­sized manufacturers, 33.06% of respondents reported they were hiring and another 57.45% had stable employment numbers. Only 9.49% saw their employment numbers decline. 

Companies are worried about losing the people they need and will tend to keep their payroll numbers up even when there is economic stress. That has been a key to the stable employment data. Companies would have likely reduced their staff in response to the economic challenges, but they are afraid they will not be able to hire the people they need when there is a rebound. There is a strong incentive to hang on to skilled workers even when business slows down.

The bad

Now we come to more negative and stressful data—costs in the supply chain. This has been a major headache in recent months and stands to be an ongoing threat through most of the rest of the year. 

When asked if they were seeing higher prices for inputs such as steel and aluminum, 88.89% in a manufacturing survey reported sharply higher prices, while another 10.30% reported they had stabilized (at a high level). Only 9.49% saw prices come down, and it appears these were companies with longer-­term deals in place. 

The prices of steel, aluminum, copper and other construction materials have been inhibiting many projects. That supply chain crisis has affected the raw materials involved with the entire electrical sector. The plastics industry is closely tied to the petrochemical world, so it has been as affected as oil and gas.

The ugly

The other set of sharp price hikes were seen in logistics, which comes as no shock. The readings showed that 84.55% saw increased logistics costs. The oil shock has driven the transportation sector into a pricing panic. 

The flatbed truck market is especially vulnerable to high diesel prices and many of these operations have simply parked their trucks until prices calm. Right now, there are 80 loads available for every flatbed, and that has contributed to record costs for transportation at every level—truck, rail, ocean and air. Only 15.18% reported stable logistics costs and a mere 0.27% saw these costs come down. That is likely to be the story for many months to come.

Looping back to the positives 

Another sliver of positive news is in the appetite for capital equipment. In light of the labor shortage, there is more dependence on technology and machinery. It is reported in one manufacturing survey that 51.63% are still on track to make these purchases this quarter, and 15.49% are delaying by just one quarter. 

Another 11.96% will delay by two quarters and 20.92% have decided to delay indefinitely. This last number is up from previous quarters, unfortunately, and signals that there is more uncertainty than there was previously. 

As you look through the data on what kind of equipment companies are investing in, there are obvious trends. The equipment is set to replace what might have otherwise been done with labor. There is also a keen interest in robotics and the expansion of artificial intelligence.

The most encouraging news comes as questions were asked about business outlook. In a major business survey, 58.20% have a positive assessment of the business future, 33.33% saw a stable business environment and only 8.47% expected conditions to worsen. That is a smaller percentage than reported pessimism in the last survey. 

If there is an overall conclusion to be reached, it is that many companies remain upbeat regarding their future operations, despite the stress inflicted by inflation and labor shortages. There is an acknowledgment of the pressures (especially in the supply chain), but, overall, growth is still expected. 

Electrical contractors are forced to wait for decisions to be made regarding projects; they rarely have the ability to push decisions. It is important that those deciding whether to proceed with a plan are feeling confident or not.

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