Hyperinflation and Labor Shortage in Construction Industry

September 3, 2021

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The construction industry has been experiencing an unprecedented mix of steeply rising material prices, supply chain issues and labor shortages. Over the last year input costs, which is the price of all materials and services, has increased 26.3%.

Introduction

While Federal Reserve Chair Jerome Powell believes the current inflation is transitory, industry experts like Warren Buffet and investor Michael Burry warn of more significant inflation than anticipated. The construction sector has been particularly affected, with lumber and plywood prices more than doubling, steel mill products jumping 88%, and copper and brass mill shapes increasing by 61%.

One of the factors contributing to the inflation is the negative supply shock caused by factory and fabrication facility shutdowns during the lockdown. Simultaneously, a positive demand shock arose as people engaged in DIY projects and renovations while stuck at home. The availability of low-interest rates also led to a surge in new home construction.

However, even after production facilities reopened, many struggled to reach full capacity due to the ongoing labor shortage. Various reasons, including unemployment benefits, child care challenges, and the allure of remote work, have made it difficult to find workers in the construction industry. The freeze in Texas earlier this year also had a significant impact on the US petrochemical industry, causing production disruptions and exacerbating supply chain issues.

In this challenging scenario, the construction industry must find ways to adapt. Price-adjustment clauses are recommended to protect both parties from volatile price swings. Governments should consider removing unnecessary hurdles in the importation, domestic production, transport, and delivery of construction products. Federal trade officials may need to review and adjust tariffs and quotas that contribute to price increases and supply shortages.

Comeback

Despite the difficulties, this challenging period also presents opportunities for innovation and progress in the construction industry. To address labor shortages, automation and robotics, such as 3D printed concrete, are being explored as potential solutions. However, it’s essential to approach these new technologies with caution and ensure they are fully developed and safe before widespread implementation.

While the road ahead may be uncertain, cooperation, communication, and innovative solutions can help the construction industry navigate the challenges of hyperinflation and labor shortages. By adopting a forward-thinking approach and staying adaptable, the industry can emerge stronger and more resilient in the face of adversity.