A surge in nonresidential building is keeping contractors busy and searching for talent.

The construction industry has become a pillar of strength in the U.S. economy, despite contractors paying more for expenses and facing labor shortages.

A robust nonresidential construction sector is offsetting home construction in the U.S. that has been weakening under the weight of higher interest rates. Contractors said spending on nonresidential projects hasn’t been diminished by higher borrowing costs that usually drive up the cost of financing construction work.

Spending on nonresidential construction for February, the most recent month available, totaled $982 billion, nearly 17% higher than a year earlier and steady with January, according to the U.S. Census Bureau.

“I’ve got more work to look at and bid on than I could possibly handle,” said Jeff Harper, president of Harper Construction Co. in San Diego. “I’ve said ‘no’ to 10 jobs in the last four months.”

Mr. Harper, whose company specializes in buildings for schools, universities and military bases, said he is booked with jobs through most of 2024. He said projects are taking longer to complete because of waits for critical materials, particularly for electrical gear, and shortages of workers.

Construction activity in the U.S. is getting a boost from new plants for electric vehicles, warehouses for e-commerce and manufacturers deciding to do more work in the U.S. after global supply chains broke down during the pandemic. Construction spending on manufacturing last year was the highest on record, according to the Census Bureau. Increased federal spending on public-works projects, defense and production of electric-vehicle batteries and semiconductor chips is expected to keep construction activity elevated into next year, contractors said.

Deere & Co., Caterpillar Inc. and other construction-equipment manufacturers expect higher machinery sales in the U.S. this year.

“We feel good about nonresidential construction in North America,” Caterpillar Chief Executive Jim Umpleby told investors in March at a construction-equipment trade show in Las Vegas. “That business has been improving and will continue to improve.”

The backlog of nonresidential projects in the U.S. under contract but not yet started was 9.2 months in February, more than a month longer than the previous February, according to the Associated Builders and Contractors Inc., a trade group based in Washington, D.C.

For factories, energy projects and other industrial jobs, the backlog was 10.4 months in February, an increase of two months from January and 3.8 months from February 2022.

While the rising backlog indicates continuing demand for construction, some analysts warn the backlog signals contractors’ increasing difficulties completing jobs and a reluctance to start new ones.

Caddell Construction Co. said it recently completed distribution warehouses near Dallas and Charleston, S.C., with about 2.5 million square feet of space in each building. The contractor based in Montgomery, Ala., has opted not to pursue contracts for some larger buildings because of concerns about the availability of workers and materials needed for the projects, said Ricky Byrd, senior vice president for commercial construction.

“There’s not enough talent in the market to do all the jobs that are out there,” Mr. Byrd said. “We say ‘no’ to projects more than we say ‘yes’ these days. It’s part of managing our risk.”

About one-fifth of construction workers are older than 55 years old and are often the most skilled workers or supervisors on a job site, the builders-and-contractors group said. As older, higher-skilled workers retire or leave for other jobs, many contractors haven’t been able to quickly replace them with younger workers with the same skill levels.

The number of construction-industry carpenters in 2022 rose 4% from 2021, according to the Bureau of Labor Statistics. Electricians increased almost 9% last year. Even with the increases, the number of carpenters remained below the prepandemic level in 2019, the agency said, while electricians were just slightly above 2019.

The number of U.S. nonresidential construction workers in March increased by 3.3%, or 149,100 workers, from the same month last year, the Bureau of Labor Statistics said Friday. Contractors have been ramping up hiring of entry-level laborers in an attempt to compensate for shortages of other workers. The number of laborers last year was 8.6% higher than in 2019.

‘There’s not enough talent in the market to do all the jobs that are out there.’

— Ricky Byrd, senior vice president for commercial construction at Caddell Construction

These newer workers are contributing to bigger backlogs and jobs taking longer to finish because they are typically less productive than the older, higher-skilled workers they are succeeding, said Anirban Basu.

To accommodate less-experienced workers, machinery maker Deere said it standardized the controls on its new excavator models with its other earth-moving equipment and designed cabs to reduce the operator fatigue that can contribute to worker turnover.

The federal infrastructure funding also carries stricter requirements for using American-made materials that contractors said could increase costs for some jobs.

February prices for cement, asphalt, flat glass and drywall sheeting increased more than 10% from the same month last year, according to the Bureau of Labor Statistics, which also reported significantly higher year-over-year increases for hiring plumbing, roofing and electrical contractors.

Contractors also said electrical equipment for buildings that contain semiconductor chips remains difficult to get because of tight supplies of chips.

Timothy Jed, supply-chain leader for California-based contractor DPR Construction, said, “The chip industry hasn’t been able to get them to our manufacturers that need them.”

Source: https://www.wsj.com/articles/construction-industry-has-work-needs-more-workers-da763703