Rising costs pressuring construction procurement across North America

Mace’s latest market view for North America shows momentum is waning in the US construction industry in the second quarter of 2019.

The US economy started 2019 on a bullish note. Buoyed by strong private sector investment, it grew at an annual rate of 3.1% in the first quarter. However, trade tensions and a slowdown in the pace of global growth constrained the rate of expansion in Q2 to 2.1%. 

Mace’s report highlights that GDP is expected to grow by 2.4% this year, before the pace of expansion slows to 1.6% in 2020 and 1.8% in 2021; suggesting a more muted outlook for the US construction industry.

Despite this overarching trend, industry dynamics continue to vary widely between states, creating a mixed picture across the country. Strong demand and rising construction costs are creating a challenging procurement landscape in busier states, while supply chain capacity is coming back on stream in other states and competition is intensifying.

Rapidly rising construction costs, both in terms of materials and labor, are at the crux of many of the difficulties seen across the industry in North America. Tariffs on steel and aluminium, for example, created additional inflationary pressure during the past few quarters. 

Although the economic picture appears relatively stable, downside risks threaten this. In a preemptive move, in July, the Federal Reserve cut rates for the first time since the depths of the financial crisis. Despite this being a preventative move to help support the economy through a period of slower growth, it emphasised the levels of economic volatility in the country, which are being spurred on, in part, by the continuing trade discussions between the US and China.  

To read a comprehensive overview of the North American construction market, please download the full report.  

Greg Parker, Managing Director of Mace North America, said: 

“Persistent growth in the cost of delivering construction projects will challenge construction companies and supply chains in North America in the coming months. Carefully designed, well informed procurement strategies can help clients to overcome some of these risks. Our market view for North America offers a clear picture of the construction market and what risks to keep an eye on.”