Key Takeaways:
- Current condition rating has never been higher;
- Year-over-year sales growth expected to near 16%;
- 75% report backlogs of 3 or more months;
- Most have had to dole out generous raises to maintain employees.
By Robert Isler
With a “current conditions” score of 88.8 out of 100, you couldn’t blame the casual observer for believing that the Building & Construction sector of K&B doesn’t have a worry in the world. After all, that’s the highest quarterly rating it has ever received since the inception of the NKBA/John Burns Kitchen & Bath Market Index (KBMI) nearly three years ago. Despite exceedingly strong business conditions, however, member feedback for the Q2 report also revealed three major challenges.
The first of these challenges is supply-chain constraints, one that is shared by every sector of K&B — and in fact, by most industries. Another is rising costs, also a common concern. The third, which is particularly acute for the Building & Construction sector, is a shortage of skilled labor. The result of these challenges has been major backlog issues, with 75% of B&C members reporting wait times of three months or more, and 44% indicating that backlogs are extending into spring 2022. Additionally, fully 45% said their most of their pipeline is behind schedule, a sharp increase over the 30% who felt that way in Q1. Stated differently, only 35% said almost all of their active projects are on schedule, compared to 50% who were running according to plan in the previous quarter.
About 80% of Building & Construction companies say they’re increasing salaries to retain employees, with most offering raises of 10% to 19%.
Clients, who have been understanding for the most part, are beginning to have their patience tested. As one member shared, “We have already lost jobs due to the assumption that prices and lead times will shrink.” Another offered: “Clients want to wait and see if prices will go back down, but even if material costs level out, labor costs will rise.” A third said that clients are openly complaining that costs are too high and as a result are waiting six months or a year to re-evaluate.
While supply-chain disruptions are showing signs of running their course — which is tempering cost increases as well — one area that can’t wait and is aggressively being addressed by this sector are the labor shortages, with 80% sharing that they gave their employees retention raises. These increases were not small, with 6 in 10 saying they offered workers wage increases ranging from 10% to 19%.
Despite these serious issues, 57% of those in the sector revealed that not one client had postponed or cancelled during the quarter, which was virtually identical to the percentage who said so in Q1. This is surely a testament to how robust Building & Construction has been. Of those who did experience customer postponements or cancellations, at least 85% stated that the percentages were low compared with their overall project volume. However, 31% expect demand to decrease over the next six months as costs continue to rise, which is close to the 34% who don’t expect business to be affected. The remainder aren’t sure.