Nonresidential Construction: Heading Up or Down?

Published On
Apr 13, 2021

Does the near-term future of nonresidential construction look bright or dim? It depends on who you ask.

According to a report from the Associated General Contractors of America (AGC), Arlington, Va., the future is fraught with challenges. “An unprecedented leap in the price of goods used in construction and supply-chain disruptions are wreaking hardships on contractors and slowing projects,” the report states. 

In fact, the AGC posted a rare “Construction Inflation Alert” to update contractors and their clients. It notes that prices for construction materials and services and contractors’ bids declined at the beginning of the pandemic but have since diverged.

A government index measuring the selling price for construction materials jumped 3.5% from February to March and 12.9% since March 2020. The increases were the highest recorded in the 35-year history of the series.

Meanwhile, the producer price index for new nonresidential construction—a measure of what contractors say they would charge to erect five nonresidential building types—increased only 0.5% last month and 1.7% over the past 12 months.

“Today’s producer price index report documents just some of the challenges contractors are experiencing with fast-rising materials costs, lengthening or uncertain delivery times, and rationing of key inputs,” said Ken Simonson, AGC’s chief economist.

However, Dodge Data and Analytics, Hamilton, N.J., sees things differently. Dodge, which recently merged with the Blue Book Building & Construction Network, reports many positive indicators looking forward. Specifically, Dodge’s Momentum Index (a monthly measure of the first report for nonresidential building projects in planning) moved 1.7% higher in March to 151.4 (the index was 100 in 2000) from the 148.8 February reading.

Overall, the March 2021 index was up 11% over March 2020, at its highest level since summer 2018, on the heels of a similar gain in February. 

While healthcare and lab projects continue to dominate institutional planning, March 2021 saw a broader selection of project types, including education and recreation. Institutional construction rose 14% from February, while year-over-year comparisons showed a 10% increase for the sector. Commercial construction, however, dipped 3.9% for the month due to a slight pullback in warehouse activity, though it showed a 12% increase from March 2020.

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