Labor Prices, Bid Competitiveness Continue Upward Trend in 2011, Anderson Says
November 1, 2010

In forecasting labor trends in 2011, Julian Anderson, president of Rider Levett Bucknall, began with the obvious: "Other than manufacturing, the construction industry has been among the hardest hit [for unemployment], no doubt about it."

Anderson pointed this out to more positive points during his presentation, which was given as part of the McGraw Hill Construction Executive Outlook Conference, October 28-29 in Washington, D.C.

He noted that architecture firm employment peaked in June 2008 at approximately 225,000; by August 2010 that employment number was closer to 166,000.

He also cited the September Architectural Billings Index, released by the American Institute of Architects, which showed, for the first time since January 2008, a growth in design activity. "It's key to watch this because unless the architects are busy, the rest of the world won't be busy," Anderson said.

Although construction employment is low, Anderson pointed that employee costs follow their own trend. If labor was a material, costs would have decreased 10 to 15 percent by now, Anderson pointed out, but instead it continues to move slowly upwards. Somewhat encouragingly, Anderson said that, unlike manufacturing, construction employment will recover and see growth over the next ten years. He predicted that productivity will be the first thing to increase, adding, "it probably already has," as employees are asked to "do more with less." That will be followed by expansion of the work week, then some temporary hires and, finally, permanent hires.

"The duration of the recession will impact the number of 'survivors' across the construction industry, leading to a permanent decrease in capacity, which will sow the seeds of future upward price pressure," Anderson said. He elaborated, "We'll have not enough people to do the work so prices spike."

Regarding construction subcontractors specifically, Anderson noted that "bonding capacity may put upward pressure on subcontractor bids for a time."

He elaborated, "As subcontractors shrink in many markets … their businesses reduce and so too, at some point, will their bonding capacity." He added, "There likely will be trouble finding subcontractors with appropriate bonding capacity during an upswing."

For 2011, Anderson sees a continued upward trend in labor and material prices, buffered by continued competitiveness among contractors, resulting in continued suppression of prices at bid.

In shifting to a look at material pricing, Anderson noted, "Demand for steel, globally, is outpacing the relatively stable U.S. demand." Statistics showed that even as U.S. consumption of steel (in nonresidential construction and other industries) declined nearly 15 percent from 2006 to 2008, world production showed small increases, about 6.4 percent, in that same period. The steel producer price index, he added, "grew mightily."

Anderson further predicted that commodities will face ongoing price increases, driven by global demand and scarcity.

Stay tuned to™ this week for more reports from the conference.

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