Construction dented by inflation

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By Jonathan Garber  | FOXBusiness  |  Originally posted on www.foxbusiness.com

Mounting inflationary pressures held back nonresidential construction spending in July, according to an Associated Builders and Contractors (ABC) analysis of U.S. Census Bureau data.

Nonresidential construction spending edged up 0.1% in July to $786.7 billion but was negative when adjusted for inflation. Spending fell on a monthly basis in six of 16 subcategories and was unchanged in three categories.

Total nonresidential spending was down 4.2% from the year prior.

“The nonresidential construction spending numbers are meaningfully worse than they initially appear,” said ABC Chief Economist Anirban Basu.

“Higher materials prices and worsening skills shortages represent primary culprits,” he added. “Many project owners are delaying projects due to elevated construction service delivery costs.”

Construction input prices were 23.1% higher in July than the year prior as the combination of a rebounding economy, supply chain disruptions caused by COVID-19, stimulus measures and labor shortages sent costs soaring.

Last month, prices for steel mill products shot up 10.8%, iron and steel prices climbed 7.8% and natural gas surged 13.5%. Those products have seen respective price increases of 108.6%, 89.2% and 146.7% over the past year, according to the U.S. Bureau of Labor Statistics.

Prices for other input costs, including fabricated structural metal products and lumber, were also sharply higher compared with year-ago levels.

It remains to be seen how long the inflationary pressures may last.

Federal Reserve Chairman Jerome Powell at his Jackson Hole symposium speech last week said inflation at these levels is a “cause for concern” but reiterated the central bank’s belief that the current pressures are temporary. 

Powell signaled the Fed could begin tapering its asset purchase program before the end of this year but said rate hikes were further out on the horizon.

Fed fund futures traders at the Chicago Mercantile Exchange are fully pricing in the first rate hike to occur in January 2023.

Business groups call on congressional delegation to reject federal tax increases

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By ROI-NJ Staff (New Jersey)  |  Originally posted on www.roi-nj.com

Eleven N.J. employer groups and trade associations this week called on the state’s congressional delegation to reject increases to the federal corporate tax rate and the Global Intangible Low-Tax Income rate.

While the recently passed $1.2 billion infrastructure agreement included no broad-based tax increases on American businesses, the groups — in an open letter to the delegation — said the prospect of massive tax hikes remains on the table during reconciliation.

Such a move, the groups said, would be a crushing blow to many New Jersey businesses.

“If increased, the ability of workers and businesses across the Garden State to properly rebound from the pandemic could be severely hampered, with our competitiveness on the global stage impacted in the process,” they wrote. “Particularly considering that New Jersey’s tax rates are already among the very highest in the nation, potential hikes at the federal level are cause for concern.”

The following groups signed the letter:

  • African American Chamber of Commerce of New Jersey
  • Associated Builders and Contractors of New Jersey
  • Chamber of Commerce Southern New Jersey
  • Chemistry Council of New Jersey
  • Commerce and Industry Association of New Jersey
  • Statewide Hispanic Chamber of Commerce of New Jersey
  • Insurance Council of New Jersey
  • New Jersey Bankers Association
  • New Jersey Business & Industry Association
  • New Jersey Gasoline, C-Store, Automotive Association
  • New Jersey Chamber of Commerce

The letter reads as follows:

Dear Members of the New Jersey Congressional Delegation,

We are writing to affirm our shared commitment to delivering New Jersey’s economy out of this current turndown, and to urge your support in this endeavor.

We were encouraged to see that the $1.2 billion bipartisan infrastructure agreement included no tax increases on American businesses. However, discussions are still ongoing for a budget that would be passed through reconciliation — and we understand that the prospect of tax hikes remains on the table.

Specifically, some federal officials have proposed raising the corporate tax rate from 21% to 28% and the Global Intangible Low-Tax Income rate from 10.5% to 21%. If increased, the ability of workers and businesses across the Garden State to properly rebound from the pandemic could be severely hampered, with our competitiveness on the global stage impacted in the process. Particularly considering that New Jersey’s tax rates are already among the very highest in the nation, potential hikes at the federal level are cause for concern.

We are wary of such tax increases and believe they would do more harm than good to New Jersey’s businesses and communities today. New Jersey experienced many lows during the pandemic, including reaching a record 16.2% unemployment rate during the peak of the pandemic and seeing about 30% of the state’s small businesses close their doors, according to some reports. There is clearly a long way to go in our recovery and we must do everything we can to support and boost economic revival in our communities.

But raising the corporate tax rate only serves to further set us back. Such a hike would affect businesses of all sizes, not just the big corporations. As we’ve seen before, tax hikes can ultimately fall onto the Main Street businesses and small shops that form the backbone of local economies across the state. A recent analysis by the U.S. Chamber of Commerce found that 1.4 million small businesses employing 13 million Americans would be forced to pay the higher rate.

And doubling the GILTI rate from 10.5% to 21% poses a host of additional challenges. A study by the National Association of Manufacturers found that up to 1 million jobs could be lost and nearly $20 billion in economic activity may be forfeited.

To protect our state’s economy and ensure a swift recovery, we urge your offices to avoid adding further tax burdens to our business community at this time.

Construction input prices up 23.1 percent from last year

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Originally posted on www.cdrecycler.com

ABC Chief Economist Anirban Basu says today’s input price increases can meaningfully affect contractor fortunes by trimming margins and delaying the onset of projects.

Construction input prices rose 0.6 percent in July, according to an Associated Builders and Contractors (ABC) analysis of U.S. Bureau of Labor Statistics’ Producer Price Index data released today. Nonresidential construction input prices increased 0.8 percent for the month.

Construction input prices are 23.1 percent higher than a year ago, while nonresidential construction input prices increased 23.4 percent over that span.

Energy prices continue to experience substantial year-over-year price increases. The price of natural gas is up 146.7 percent, while crude petroleum and unprocessed energy materials prices are up 102.9 percent and 93.8 percent, respectively. Prices for steel mill products increased 10.8 percent for the month and are up 108.6 percent for the year.

“One’s definition of transitory needs to evolve with these data,” says ABC Chief Economist Anirban Basu. “While it is quite likely that there will be less inflation a year from now, a rebounding economy, ongoing supply chain disruptions and limited productive capacity have conspired to generate rapid price increases.

“Many economists insist that the current situation is merely temporary; still, today’s input price increases can meaningfully affect contractor fortunes by trimming margins and delaying the onset of projects.”

According to Basu, the good and bad news is that the economy is flush with liquidity.

“Injections of money supply by the Federal Reserve, which has yet to indicate when it will begin to moderate its quantitative easing program, have helped create large pools of investable money,” he says.

A significant fraction of that money is also being invested in real estate, which Basu says will often translates into construction projects. That is consistent with the stable-to-rising backlog observed in recent months as well as ongoing confidence among contractors, reflected in ABC’s Construction Backlog Indicator and Construction Confidence Index. However, Basu warns that liquidity also serves to help push prices higher.

“One can only conclude that the economy will continue to run hot into 2022 despite the malign impacts of the delta variant, producing both hefty advances in gross domestic product and unusually elevated inflation,” says Basu. “The fact that steel prices are rising is not only an indication of the recovery transpiring in goods-producing industries like construction and manufacturing, but also of the difficulty global suppliers are having keeping up with demand.

“That dynamic does not appear poised to change substantially in the very near-term, though there was some evidence of moderating inflation in the most recent Consumer Price Index report. Contractors should assiduously build contingencies into their contracts to protect themselves from additional materials price spikes. Given that construction firm services are in high demand, contractors should have enough negotiating leverage to accomplish that under most circumstances.”

Concrete and Cement Industries Brace for Demand Boom From $1 Trillion Infrastructure Plan

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Originally posted on www.nbcmiami.com

Concrete is the foundation of just about everything. It’s used to construct buildings, highways, bridges, roads and more.

During the Covid-19 pandemic, concrete fell victim to the same phenomena impacting other essential materials and goods: snarled supply chains and labor shortages. And demand for concrete — and its essential ingredient, cement — appears to have only increased, after the Senate passed the $1 trillion infrastructure package to upgrade America’s roads, bridges and tunnels.

“In the short-term, we continue to have the supply chain difficulties, particularly in certain markets, and so prices are rising,” Anirban Basu, chief economist for the national construction industry trade association Associated Builders and Contractors, told CNBC. “So right now, apparently, supply is not rising up to meet demand.”

The industry also faces labor shortages of skilled workers and truck drivers. And the recent housing boom means more demand for concrete and cement, putting more pressure on the industry to increase capacity.

On top of all of this, there’s also a push to reduce the amount of carbon emissions that come from the industry. A study published by the National Academy of Sciences in 2019 estimates that global cement production accounts for 8% of global carbon emissions, making it the largest single industrial emitter of carbon dioxide.

Construction Industry Gains 11,000 Jobs in July as Jobless Rate Falls

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Originally posted on www.enr.com

Construction’s unemployment rate dropped in July on a monthly and year-over-year basis to its lowest level in 17 months, as the industry added 11,000 jobs, the Bureau of Labor Statistics has reported.

But the latest monthly BLS report on the nation’s employment picture, released on Aug. 6, also showed job losses in some parts of the industry’s nonresidential sector.

Construction’s unemployment rate for July declined to 6.1% from June’s 7.5%. Last month’s rate also improved sharply from the year-earlier level of 8.9%, BLS figures show.

July’s rate was the lowest since February 2020’s mark, the last month before the Covid-19 pandemic hit. Notably, construction’s July jobs increase followed  three months of downturns.

The residential building category recorded the strongest July jobs results, adding 8,300.

The nonresidential sector overall was up by 2,900 positions, but a gain of 7,500 in the nonresidential specialty trade contractors segment masked declines of 2,500 in nonresidential building and 2,100 in heavy and civil engineering construction.

For the 12 months ended July 31, construction overall added 224,000 jobs, an increase of 3.1%, BLS data indicate.

The bureau’s jobs figures are adjusted for seasonal differences, but its unemployment rates are not seasonally adjusted.

ABC, AGC Economists’ Analyses

Anirban Basu, Associated Builders and Contractors chief economist, traced the big upturn in nonresidential trade contractors to “considerable work underway” in upgrading existing facilities.

Basu said in a statement, “That helps explain why nonresidential specialty trade contractors added thousands of jobs last month while general [nonresidential] contractors did not.” ABC focuses on nonresidential construction.

He also pointed to liquidity in the economy as a key factor behind the recovery. Some of that capital is being invested in real estate, he said, “which translates into additional construction work.”

Still, Basu acknowledged, new construction remains “suppressed” in such segments as lodging and office buildings, due to dislocations from the pandemic.

The Associated General Contractors of America pointed out that total nonresidential construction employment is running far behind pre-pandemic levels.

Ken Simonson, AGC’s chief economist, said in a statement, “Contractors are plagued by soaring materials costs, long or uncertain delivery times and hesitancy by project owners to commit to construction.”

Simonson added, “Recovery has been especially slow in infrastructure construction,” noting that contractors in that category have regained only 37% of jobs lost in the pandemic.

Overall, the U.S. economy added 943,000 jobs in July, and the unemployment rate edged down to 5.4%, from June’s 5.9%.

ABC-Led Coalition Announces Six-Figure Advocacy Campaign

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Originally posted on gxcontractor.com

WASHINGTON—Build America Local, a coalition of construction industry and business organizations led by Associated Builders and Contractors, today announced a six-figure issue advocacy campaign aimed at educating Americans and members of the U.S. Senate about controversial government-mandated project labor agreements that reduce competition and increase costs for the construction of taxpayer-funded affordable housing, clean energy and infrastructure projects across America.

The campaign urges senators to oppose government-mandated PLA schemes as bipartisan infrastructure negotiations continue between a select group of Senate Republicans and Democrats and the Biden administration.

“As Congress works to craft infrastructure legislation, it is critical for the U.S. Senate to oppose government-mandated PLAs so all qualified contractors and construction workers have the ability to fairly compete and build America’s infrastructure,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs. “Ensuring fair and open competition on taxpayer-funded construction projects will ultimately result in savings to taxpayers, more opportunities for all qualified small businesses, minorities and women in the construction industry, and the construction of more quality infrastructure projects so America can Build Back Better and faster.”

When mandated by the federal government, PLAs exacerbate the U.S. construction industry’s skilled labor shortage, effectively prevent the 87.3% of the U.S. construction workforce that chooses not to join a labor union from fairly competing for contracts and drive up the cost of critical infrastructure projects by 12% to 20%, resulting in fewer construction projects and local jobs.

The Build America Local website houses a variety of educational and social media materials and also gives constituents access to a grassroots tool to tell their elected leaders to support local workers and businesses by opposing government-mandated PLAs in federal infrastructure legislation.

The Biden administration’s American Jobs Plan infrastructure outline encourages Congress to tie federal investment of taxpayer dollars in infrastructure to costly PLA requirements. Other Biden administration policies encourage state and local governments to mandate PLAs on infrastructure projects receiving federal dollars. It has been reported that the Biden administration is also working on an executive order encouraging the use of PLAs on federal contracts for construction services.

Controversial terms in typical government-mandated PLAs discourage competition from qualified union and nonunion contractors and result in a rigged bidding process that forces contractors to:

  • Use union hiring halls to obtain most or all workers instead of their existing workforce.
  • Obtain apprentices exclusively from union apprenticeship programs.
  • Follow inefficient union work rules.
  • Pay into union benefit and multi-employer pension plans that any limited number of nonunion employees permitted on the project will be unlikely to access unless they join a union and vest in these plans.
  • Require their existing workforce to accept union representation, pay union dues and/or join a union as a condition of employment on a PLA job site and receiving benefits, resulting in an estimated 20% hit to the paychecks of local craft professionals.

ABC to Senate: The PRO Act Is a Wolf in Sheep’s Clothing

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Associated Builders and Contractors | Originally posted on amerisurv.com

Washington, July 22—Ahead of today’s U.S. Senate Committee on Health, Education, Labor and Pensions’ hearing on the Protect the Right to Organize Act, Associated Builders and Contractors released the following statement:

“The PRO Act legislates away the basic employer and employee freedoms and choices that create long-term careers and make the construction workforce safer and more productive,” said ABC Vice President of Legislative and Political Affairs Kristen Swearingen. “Make no mistake: the PRO Act is a wolf in sheep’s clothing, and the American public deserves to know that it is nothing more than an attempt to strip workers of their privacy, freedom and choice.

“Among the many harmful provisions in this dangerous piece of legislation, the PRO Act tips the scales against workers and small businesses in union elections, eliminates basic employer and employee rights and imposes unbearable burdens on job creators,” said Swearingen. “Lawmakers must fully reject this bill and instead focus on creating legislative solutions that offer more freedom for workers to achieve their career dreams, not eliminating their choices. The workforce, and America, wins when people have that choice.”

Ahead of the hearing, ABC sent a letter opposition to the Senate HELP Committee.

What the 117th Congress Means for Construction

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Following several contentious U.S. House election results and two key U.S. Senate runoff elections in Georgia, the federal congressional elections have been decided, and the 117th Congress has begun its legislative session.

As was the case for President Trump’s first two years in office, President-elect Biden’s party will have a majority in both chambers of Congress and, as the new administration tackles the ongoing COVID-19 pandemic, as well as many of its priority issues (some of which directly affect the industry), the 117th Congress will play a vital role in the administration’s ability to act on its campaign promises for the next two years.

Georgia Runoff Election Results

On Jan. 5, 2021, Georgia voters returned to the polls following indecision on Nov. 3, 2020, regarding whether Republican U.S. senators David Perdue and Kelly Loeffler would retain their seats or lose them to Democratic opponents Jon Ossoff and Raphael Warnock, respectively.

Democratic U.S. Senate candidates Jon Ossoff and Rev. Raphael Warnock were declared winners of the two Georgia runoff elections on Jan. 6. Around 1 a.m. ET, Rev. Warnock was the projected victor in the Senate special runoff election over appointed U.S. Sen. Kelly Loeffler (R). At press time, Rev. Warnock’s lead was 64,488 votes out of a current turnout of 4,424,426 ballots with a projected 98% of the vote reporting, a margin of 1.4% (50.7% – 49.3%). Around 4 p.m. ET, documentary filmmaker and 2018 House candidate Ossoff was declared the winner against incumbent Sen. David Perdue (R), giving Democrats the 50 senators they need to gain control of the Senate. At press time, Ossoff led Sen. Perdue by 27,075 votes of 4,419,407 ballots counted, a margin of 0.62% (50.31% – 49.69%).

As the special election winner, Rev. Warnock will stand again for election to a full six-year term in 2022. Sen. Johnny Isakson (R) was elected to this seat in 2016 but resigned due to health reasons at the end of 2019. Gov. Brian Kemp (R) appointed Loeffler to replace Sen. Isakson to serve until the outcome of the special election, which determines who would hold the office for the balance of Isakson’s initial term in 2022. Ossoff won the in-cycle seat, gaining a six-year term and will stand for reelection in 2026.

The election of Ossoff and Warnock marks the first African American senator to represent Georgia, the first time two Democratic senators to represent the state since 1992, and an even split in the Senate with 50 Republicans, 48 Democrats and 2 independent senators who caucus with Democrats.

These Democratic victories in the two runoff campaigns, made necessary under a Georgia election law that requires majority support to win office, will effectively clinch the narrowest possible majority for Democrats in the U.S. Senate, allowing for command of both chambers of the 117th Congress after retaining control of the U.S. House of Representatives after initially winning the lower chamber in 2018.

As President-Elect Joe Biden prepares for his first day in office on Jan. 20, Vice President-Elect Kamala Harris will assume the role of president of the evenly divided Senate and would cast tie-breaking votes, giving Democrats functional authority of the upper chamber.

However, despite a 50-50 split, Democrats have an edge in passing their priority legislation and approving contentious nominations with Vice President Kamala Harris serving as the tie-breaking vote.

Congress by the Numbers

For the fourth time in U.S. history, the Senate faces its narrowest possible majority, and Democrats will maintain control of the Senate for the 117th Congress. As a result, Senator Chuck Schumer (D-NY) will take over as majority leader from Senator Mitch McConnell (R-Ken.), who has served as majority leader since 2015.

In the House, the Democrats’ slim, eight-seat majority does not bode well for their ability to pass sweeping legislation, as they did in the previous Congress.

Additionally, several Democratic members have maintained key leadership positions within the House, such as Rep. Nancy Pelosi (D–Calif.) as Speaker of the House and Rep. Bobby Scott (D–Va.) as chair of the Committee on Education and Labor. However, due to in-fighting between the progressive and moderate wings of the Democratic party, the administration may have to seek bipartisan support to accomplish many of its legislative goals.

Looking Ahead: Industry Priorities for Congress

Many of the major issues that were not resolved in the 116th Congress will likely continue into the 2021-2022 session—specifically, the Democrats’ attempts to pass the Protecting the Right to Organize (PRO) Act, a $1.5 trillion infrastructure bill and both parties’ hopes to pass additional COVID-19 relief.

Introduced by House Education and Labor Committee Chairman Bobby Scott (D-Va.), the PRO Act (H.R. 2474) aims to strip away workers’ free choice in union elections, codify an Obama-era joint-employer standard that threatened small and local businesses, limit independent contractors’ rights, eliminate right-to-work protections and roll back other aspects of the Trump administration’s deregulatory agenda.

Since its introduction, various business organizations, hundreds of which are members of the ABC-led Coalition for a Democratic Workplace, have opposed the PRO Act for its violation of privacy rights and diminishment of freedoms for workers and small businesses across the country.

On Feb. 6, 2020, the House passed the PRO Act by a vote of 224 to 194, with five Republican votes for the bill and seven Democrat votes against it. Despite the large margin in support of the House bill, 41 cosponsors for the Senate companion bill and the Biden administration openly supporting passage of the PRO Act, Senate Democrats may face hurdles maintaining party support in order to pass this bill (or similar legislation) if introduced during this Congress.

In July 2020, House Democrats passed H.R. 2, the Moving Forward Act, an infrastructure plan that would have spent more than $1.5 trillion on surface transportation, airport, school, housing, health care, energy, water and broadband infrastructure. However, the bill excluded many critical priorities for the construction industry while implementing numerous anti-merit shop provisions, such as government-mandated project labor agreements and inflationary Davis-Bacon prevailing wage requirements.

Touted as one of one of the Biden administration’s priority issues, passing a comprehensive infrastructure package will need bipartisan support to advance through both chambers and onto the president’s desk; making sure to incorporate the bipartisan provisions included in Senate infrastructure bills during the 116th Congress could lead to passage.

Continuing from the previous Congress, the biggest issue at hand for both chambers will likely be providing additional COVID-19 relief. President Trump signed a relief package into law, narrowly avoiding a government shutdown, at the end of the 116th Congress. The legislation, which combines $900 billion in COVID-19 aid with government funding through September 2021, was passed by large majorities in both houses of Congress on Dec. 21.

Through the U.S. Small Business Administration’s Paycheck Protection Program, the construction industry received roughly 12% of PPP loans, totaling more than $65 billion in relief, through 2020. Fortunately, the relief package most recently signed into law included an additional $284 billion for the PPP, critical tax deductibility of these forgivable loans, funding to allow the hardest-hit small businesses to receive a second forgivable PPP loan and expansion of loan eligibility to certain 501(c)(6) organizations.

As the new administration takes on various workplace safety issues related to COVID-19 and will likely reverse many of former President Trump’s deregulatory accomplishments, Congress will play just as important of a role in having a lasting impact on the industry.

With a razor thin majority in both chambers, Democrats will need Republican buy in on their legislative priorities. While the question lingers as to whether Senate Democrats will attempt to overrule the 60-vote threshold to end the filibuster and gain a two-year majority rule, the 2022 midterm elections are already on the horizon and Democrats will certainly face an emboldened Republican effort to take back the House majority lost in 2018 (as well as the newly lost Senate majority). And if past is prologue, Republicans will be favored to do just that, as the party occupying the White House typically loses seats in the midterms.

ABC Beltway Blueprint: What the 117th Congress Means for Construction, ABC Statement on Labor Nominee, PPP Relaunch, and COVID Safety Stand-down

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Legislative, Executive, PAC and FEA Committees, Board Members, Chapter Presidents, and ABC Staff,

Please see below for an update on: legislation, elections, and federal, state, and local policies affecting our construction businesses and workforce; ABC’s work with Congress and the administration; upcoming webinars; and critical action alerts to capitalize on opportunities to influence our nation’s leaders.

The ABC Beltway Blueprint is also meant to be used as a tool for our state and local chapters to share with their members and provide updates on important ABC actions. As always, feel free to reach out with any questions or concerns.

What the 117th Congress Means for Construction:

Please see today’s attachments, which include a sneak draft preview of ABC’s CE article for February from ABC’s Brad Mannion and Shreya Kanal on “What the 117th Congress Means for Construction” and an overview of potential labor and employment policies from the Biden administration.

ABC Statement on Marty Walsh for Labor Secretary:

ABC released a statement this morning on President-elect Biden’s selection of Boston Mayor Marty Walsh as his nominee for U.S. Labor Secretary. See full statement here.

PPP Relaunch Starts on Monday:

The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced today that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. Lenders targeting underserved communities will have exclusive access to offer loans to new borrowers Monday and Tuesday. They will then be able to offer second loans to existing borrowers Wednesday, and then the PPP is expected to open widely a few days later, according to the SBA.

Earlier this week, SBA released additional PPP guidance in accordance with the recently signed into law COVID relief legislation. Below are links to the new guidance and interim final rules. Of note, the FAQs for 501(c)(6) organizations fails to provide clear and concise guidance on how lobbying restrictions will be implemented, an issue that ABC has sought clarity on since the enactment of the new law. In a call with SBA and Treasury this afternoon, a number of organizations brought up the need for clarity on lobbying activities ahead of the program relaunch. SBA also stated their intention to post new applications for the program over the next couple days. We will continue to pursue additional guidance from our federal agencies and will update you with any additional information.

Join the ABC Construction COVID-19 Safety Stand-down on Jan. 14

As COVID-19 cases continue to spread across the country and local governments impose new stay-at-home orders, it is more important than ever to remind key officials that the construction industry continues to work in a safe and essential manner during this pandemic. To show we are staying safe on jobsites and reducing the spread of the coronavirus, ABC, the National Association of Home Builders and other construction organizations are hosting a COVID-19 Safety Stand Down from Jan. 11-15, with ABC members targeting Thursday, Jan. 14 for member activities. Learn more here.