Construction cost increases slowed in the last half of 2006. But the relief is likely to be short-lived and may have ended already, says Kenneth Simonson, chief economist for the Associated General Contractors of America (AGC). "By the end of 2007, materials costs could be rising again at a 6-to-8 percent rate, with wages rising at a 5 percent pace."
Petroleum, concrete, and metals products point to greater volatility which implies that highway and other heavy construction are more likely to experience large price jumps again than are building construction segments. But even building construction is at risk of much higher materials cost increases than the general rate of inflation.
In terms of labor, Simonson believes, "the industry also may be entering an era of accelerating wage and salary costs." From February 1997 to February 2007, the industry created one out of 10 new jobs in the economy, double the industry's share of overall employment. Construction employment increased by nearly 2 million, or 33 percent, while total nonfarm payroll employment rose barely one-third as fast, or 13 percent.
Demand for skilled craft workers, supervisors, estimators and managers is growing as the volume of nonresidential construction increases. However, low unemployment throughout the economy means there are fewer applicants to choose from while more skilled construction workers are reaching retirement age.