Day One: Simon(son) Says
So which do you want first, the bad news or the bad news? That seemed like the question being asked at the Glazing Executives Forum held yesterday in conjunction with the GlassBuild America show. Attendees were socially distanced, so it was harder to estimate, but it seemed the most popular sessions attracted about 120-150 people.
The most popular was entitled “Supply Chain Challenges,” led by Ken Simonson, chief economist for the Associated General Contractors (AGC). Simonson painted such a negative picture that it prompted an audience question at one point, asking, “Is there any good news?”
Simonson responded that he’s an economist and it’s his job to highlight the problem areas, but that yes, there were some positives, namely more glass is being used in warehouses. To hear him tell it if you put the positives on one side of a scale and the negatives on the other, one side would hit the ground.
“The Delta variant is a significant threat to the construction industry,” he said. “Construction workers have among the lowest vaccination rates of all industries. Now that a mandate is coming, we fear we will lose people who will leave jobs rather than get vaccinated.” Simonson was referring to the new regulations that OSHA is developing requiring vaccination for employees at all companies with more than 100 employees and for all the employees and subcontractors of all Federal contractors be vaccinated to work on federal projects. He fears they will leave construction or go to work for smaller companies. “We are just going to have to see what the regulations look like,” he said, “As they will surely make their way through the courts.”
AGC also tracks the average price of bids on new jobs (the bid price) and told the group that there has been 4.4% increase in those bid prices over the last few months. “That seems pretty good,” he said, “Until you realize how much the price of materials (according to the government’s product price index) has increased. “Steel mill materials are up 109 %, lumber is up 57%, and aluminum mill prices are up 33%. The bid price isn’t keeping up with any of these.”
He mentioned that glass had a “very modest increase of 7.1%” over the same period, perhaps not realizing that, for the glass industry, that’s one of the largest increases ever in the past 30 years.
And the news kept coming. “Lead times continue to lengthen,” he said. “The lead time on something like bar joists is up to 12 months now. It’s very hard to get the materials and the costs for shipping and freight are up too. Overall, Simonson expects construction spending to continue to increase, just not at the rate it has in the past few months.
Long-term industry wide trends were also addressed. Among those:
1. Less population growth. This will lead to lower demand growth for housing, schools etc.;
2. A permanent shift from retail to e-commerce that will not revert back;
3. More emphasis on medical structures including specialized and online healthcare facilities, but fewer hospitals;
4. An increase in storage and warehouse facilities.
Based on my discussions today, it doesn’t seem the industry is buying a doom-and-gloom scenario. “I’d rather not be able to get glass than be back in ‘08 when nobody could get it and nobody wanted any,” said one attendee to me. Though we have challenging times, they don’t seem insurmountably challenging. Of course, companies will want to continue to monitor key predictors, including inflation. Inflation can extinguish an industry as quickly as it takes to melt a witch with a bucket of hot water. But we can weather this, no matter what Simon(son) says.
P.S. More from the show in the days ahead … and if you are here, please stop by booth 3006 as I would love the chance to say hello in person.