construction and design firms reported challenges with product and material shortages and increased costs at the beginning of the fourth quarter.
While only half of businesses anticipated heightened costs for raw materials, such as lumber, copper, steel, plastic and aluminum, more than two-thirds reported that these materials had increased in cost over the past quarter. Following recent price hikes for lumber, only 2 in 5 businesses expect that costs will continue to rise through the end of the year.
More than 9 in 10 construction firms reported moderate to severe shortages of skilled labor for Q4 (91%). While fewer pros reported shortages across all categories this quarter than in Q3, carpenters, laborers, framers and cabinet specialists continue to be in shortest supply (52%%%%, respectively).
Read on to find out more about what remodeling industry firms said about current business conditions. We’ll look first at construction companies and then at firms in the architectural and design services areas. We’ll start with what these firms expect for the next three months, then look at their project wait times. Lastly, we’ll review their business activity over the previous three months.
1. Expectations for business activity decreased somewhat. The Expected Business Activity Indicator, related to project inquiries and new committed projects, decreased to 74 in Q4 from 76 in the third quarter of 2021. Notably, the expectations for project inquiries declined, from 79 to 73 in Q4. Expectations for new committed projects increased 1 point from last quarter (73 to 74).
Build-only remodelers reported a 1-point decline in expectations for project inquiries and new projects (from 77 in Q3 to 76 in Q4). Expectations for design-build remodelers decreased significantly (from 76 in Q3 to 71 in Q4).
The Expected Business Activity Indicator for construction firms is steady compared with a year ago, with a 1-point increase from the fourth quarter of last year.
The Expected Business Activity Indicator is based on survey questions that ask businesses to report whether they expect the number of project inquiries and new projects to increase, decrease or be unchanged in the coming three months compared with the prior three months. A score higher than 50 indicates that more firms expect increases than decreases.
The overall backlog for the construction sector has been increasing for seven consecutive quarters and is more than a month (4.5 weeks) longer than in the same period last year.
Backlogs range quite a bit by region, as this map shows. The Mountain division of the U.S. (Arizona, Colorado, Idaho, Montana, New Mexico, Utah, Wyoming) has the shortest average wait time (9.2 weeks), while the New England division (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) has the longest (13.8 weeks).
Backlogs in the construction sector are longer than a year ago across all nine geographic divisions as defined by the U.S. Census Bureau.
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3. Recent business activity declined significantly. A decrease in new project inquiries and new committed projects in July, August and September dropped the Recent Business Activity Indicator of the Barometer to 73 for construction firms, down 9 points from the previous quarter. Both build-only remodelers and design-build remodelers reported significant decreases in recent business activity over this period.
Relative to a year ago, the indicator is down 2 points.
The Recent Business Activity Indicator looks at actual activity over the previous three months. In contrast with the Expected Business Activity and Project Backlog indicators, which look forward in time, the Recent Business Activity Indicator looks back. It’s based on survey questions that ask businesses to report whether they observed the actual number of project inquiries and new committed projects increasing, decreasing or staying the same in the previous three months relative to the three months before that. A score higher than 50 indicates that more firms reported increases than decreases.
1. Business activity expectations declined slightly. Architects and interior designers reported slightly lower expectations for new business activity for the fourth quarter of 2021 compared with the start of the previous quarter. Their score of 69 for the Expected Business Activity Indicator shows that more firms are expecting increases in new business activity than are expecting decreases. This measure is down 1 point from the start of Q3 2021, when it was 70.
The score now stands 7 points higher than it did one year ago, which indicates architects and interior designers are more optimistic than they were this time last year.
After high expectations among interior designers in Q3, the group has significantly tempered its anticipation of project inquiries and new committed projects in Q4, with a 14-point decrease in overall expectations, to 64. Architects reported a 6-point increase in overall expectations, to 72, relative to the start of the third quarter.
Compared with a year ago, when wait times were 4.5 weeks, wait times are up by more than a month (4.8 weeks).
Taking a closer look by professional type, architects have significantly longer wait times to take on a new midsize project (11.1 weeks, up 4.7 weeks relative to the start of the previous three months) than do interior designers (6.1 weeks, down 2.4 weeks relative to the start of the previous quarter).
Again, backlogs vary by region, as this map shows. The West North Central division of the U.S. (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) has the shortest average wait time (6.1 weeks), while the New England division (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) has the longest (11.1 weeks).
Compared with the same quarter a year ago, backlogs in the architectural and design services sector are longer across all nine census divisions.
3. Recent business activity decreased slightly. Compared with construction firms, architecture and design firms saw a smaller decline in recent project inquiries and new committed projects in July, August and September. Their score for the Recent Business Activity Indicator of the Barometer decreased to 70, a 2-point drop from the prior three months.
Relative to the same period a year ago, the indicator is up 9 points, which indicates business activity has significantly improved since this time last year.
The just-released Q4 Houzz Renovation Barometer reveals that residential construction and design professionals anticipate strong activity through the end of the year, even as wait times to begin a new project have steadily increased across the industry since the beginning of the pandemic.
“Confidence prevails across the industry through year-end despite the Expected Business Activity Indicator dipping slightly compared with the very high level last quarter,” says Marine Sargsyan, Houzz senior economist. “We’ve seen some settling of home renovation and design activity following record-high performance earlier in the year. Yet many businesses are struggling to catch up with heightened demand as they navigate supply chain challenges and labor availability, leading to record-long backlogs.”
This content was originally published here.