Thomas C Schleifer, Ph.D.
It is somehow comforting when other experts confirm your view of the world. Just this week in Engineering News Record:
ENR October 12, 2022
Construction Wages Grow at Fastest Rate in Decades Despite Recession Threat
By James Leggate
“Contractors are continuing to hire as they operate at capacity, but a potential recession could impact the economy next year,” said Anirban Basu, chief economist for Associated Builders and Contractors.
“I think we’re headed for recession in 2023, and I do not believe it will be a mild one. Construction wages rose 5.5% over 12 months as of September, the fastest growth in about 40 years,” Basu said.
Contractors have been busy hiring, with about 407,000 construction job openings in August, according to the U.S. Bureau of Labor Statistics. And Basu said he expects contractors will continue hiring and raising wages as baby boomers retire from skilled trades.
“Even if we enter recession, even if construction activity slows down, my strong sense is you’re going to be paying more for work,” he said.
Material prices also remained elevated, with inputs to construction up 16.3% year-over-year in September, according to the U.S. Bureau of Labor Statistics. Basu noted that was down from closer to 25% within the past year.
Even with the increased costs and builders operating at capacity, Basu said investment in nonresidential buildings is down, pointing to data from the U.S. Bureau of Economic Analysis. Contractors have so far been largely able to pass along costs to owners. Basu said that may not be the case in the coming months. As bid amounts continue rising, private owners will balk, and public owners will worry about spending taxpayer money.
Think Outside the Box
Rampant cost inflation followed by an eroding “top-line” recession and constricted by a continuing labor shortage is the definition of the disorderly construction marketplace that we have been talking about for the past twelve weeks.
The question we have been attempting to answer is, “How can contractors best manage their business under such circumstances?” Forced to do business in a disruptive, risk-filled marketplace calls for some new thinking on the construction professional’s part. The modern cliché to “think outside the box” is the order of the day.
Unfortunately, it seems that we construction professionals resist change and carry-on doing things the way “we have always done them”. (Taking on new less-profitable work while luring expensive employees away from the competition as the market begins to cool is probably a formula for disaster.) For the time being, at least, construction professionals need to conceive and adopt an entirely new approach to their business. While casting about for the best way to help us recognize the unprecedented risks that are threatening our survival and inspire us to begin to think out of the box, I found these words of Rudyard Kipling and reprint them here as an inspiration to us all:
If you can keep your head when all about you
Are losing theirs and blaming it on you.
If you can trust yourself when all men doubt you,
But make allowance for their doubting too.
If you can dream – and not make dreams your master.
If you can think – and not make thoughts your aim.
If you can meet with Triumph and Disaster
And treat those two imposters just the same.
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools.
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss.
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so, hold on when there is nothing in you
Except the will which says to them: “Hold on!”
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And – which is more – you’ll be a man, my son!
Thinking of new unfamiliar ways to do things when we find ourselves in unchartered waters takes creativity, courage, and an appetite for risk. These, I submit, are the qualities found in abundance in successful construction professionals.
Next week: Conservative management decisions to stabilize the ship in choppy waters.
For a deeper look into surviving a risk-filled marketplace, read more here: DISRUPTIVE MARKET
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