Times were when a sharp increase in the price of a product necessary to keep production rolling would either slow down the process greatly or stop it completely. The price of diesel fuel, for instance, has a huge impact on the trucking industry. In the past, when fuel prices fluctuated upward, thousands of truckers would find themselves out of jobs because of the razor-thin margins many of these owner-operators and fleet companies tried to manage on. Today, escalading diesel prices have become an expected wild card in the trucking industry, and trucking companies are now able to raise their prices accordingly, sometimes on a weekly basis, in order to maintain profitability.
We are finding the same thing to be true in construction. While the price of fuel is a concern in construction, other things are in the forefront, such as rising material prices, created by the short supply of steel and rubber, two key materials in building construction machinery. Like the trucking industry, though, equipment manufacturers are passing along the cost add-ons – and they are being readily accepted because of the continuing good health of the construction economy. The material shortages are the result of several factors, led primarily by an increase in the global demand for equipment. So, while some might bemoan higher prices and longer lead times when they are in need of new equipment, the fact is, most of us will gladly take the slowdown in the supply chain over a slowdown in demand.
According to a recent U.S. Census Bureau report, private non-residential construction is up almost 11 percent during the first four months of 2006 over the same period last year. In this category, several types of construction are leading the way, including multi-retail, which is up 37 percent; hospital construction, up 25 percent; manufacturing facilities, up 22 percent; lodging, up 18 percent and office construction, up 14 percent.
Ken Simonson, chief economist for the Associated General Contractors of America, is bullish about the future of construction. Simonson predicts a strong overall economy will continue to push construction despite the rising costs of many necessary materials, and any shortages may only create delays in building projects.
For me, those delays simply serve to extend the steady growth cycle that started in 2002, and will hopefully turn into the best 10-year run this industry has seen in recent years. If you ascribe to the glass-is-half-full perspective, then you, too, believe such growth, sustainable even with these raw material shortages, is strong growth indeed.