Dive Brief:

• There may be a sliver of good news for contractors as supply chain woes, material price escalations and long lead times for key construction components have begun to improve.
• Jay Pendergrass, director of supply chain management and equipment at top 11 contractor Gilbane, issued some upbeat notes in his latest Market Conditions Report looking ahead to the second half of 2022.
• “We have seen measures of supplier performance, delivery times, backlogs and shortages are showing some improvement,” Pendergrass wrote in a report issued July 6, highlighting a softening of commodity prices, including for copper, steel and lumber.  

Dive Insight:

While not universally positive, Pendergrass’s outlook for 2H 2022 pointed to key areas displaying better conditions for contractors.

“As we move into the back half of 2022, tighter financial markets, slower growth and a continued improvement of supply bottlenecks could lead to a further retreat in commodity prices and an easing in goods price inflation for many equipment and materials,” Pendergrass wrote. “The rate of increase for commodities is slowing and may be peaking in some commodities as we move to the back half of 2022.”

Pendergrass’s outlook comes as the Federal Reserve has promised to raise interest rates even more, on top of the total 1.5 percentage point increase it’s already instituted this year. It’s set to announce its next rate decision July 27. 

Meanwhile, some market observers and economists have argued that inflation has already peaked, due to demand softening and some supply side issues being straightened out.

Pendergrass’s market measures provided at least some more data points to support that perspective.

For instance, while deliveries are still delayed across the board, prices have stabilized for copper, glass, steel and stainless steel pipe and fittings.  Inventories of plumbing fixtures, notoriously difficult to procure earlier in the pandemic, have also improved.

At the same time, he noted there were still plenty of headwinds hitting the construction market. Major electrical and mechanical equipment, curtainwall and roofing materials still show lead times of more than six months, for instance. 

The war in Ukraine has also intensified shortages of oil, natural gas, fertilizer, aluminum, palladium and titanium. And the impacts of COVID-19 lockdowns in Asia during the first half of 2022 will still play out during the last six months of the year.

Meanwhile, surging demand in the U.S. has led to contractors having to pay workers more.

“Rising inflation poses an additional risk, especially to labor costs where workers have the upper hand in negotiating their position during the balance of 2022,” Pendergrass wrote.