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Many Roofers See Stellar 3Q, Commercial Sector Still Lags

Builders at work with wooden roof construction
Many roofers appear to have had a stellar third quarter thanks to ongoing demand and government incentives.

Despite the twin business bottlenecks of labor and supply, many roofers appear to have had a stellar third quarter, thanks to ongoing demand and government incentives, according to several quarterly reports and industry experts.

However, the story is less rosy for the commercial sector, which continues to see a pandemic-related slowdown.

Meanwhile, all eyes are on Congress to see if it can finally pass a $1 trillion infrastructure spending plan that could be the shot in the arm commercial construction desperately needs.

“The US roofing industry continues to struggle with high demand and ever-increasing pricing. Raw materials needed to manufacture materials continue to be difficult to source and logistic shortages in shipping, rail and trucking exacerbate already difficult supply chain challenges. Yet contractors remain busy throughout the country in spite of dealing with the frustration of not knowing exact delivery times,” said NRCA CEO Reid Ribble.

Beacon’s third-quarter results back up that optimistic outlook. 

According to the company:

  • Net sales increased 20.8% compared to the prior year to $1.87 billion, a quarterly record for net sales from continuing operations;
  • Third-quarter sales increased across all three product categories, driven by higher demand, particularly within complementary and non-residential roofing products categories, as well as the successful implementation of price increases;
  • Residential roofing product sales increased 18%, complementary product sales increased 35.1%, and non-residential roofing product sales increased 16.3% compared to the prior year. The third quarter of fiscal 2021 and 2020 each had 64 business days.

Looking at construction as a whole, strong demand for residential building kept spending levels high over the third quarter, a trend that’s expected to continue through 2021, according to the FMI’s North American Engineering and Construction Outlook Third Quarter Edition. That’s led by single-family construction improvements, which were up 5%. The report also noted that spending declines will be led by nonresidential construction including publicly funded buildings, which are down under zero percent.

Still, FMI’s Nonresidential Construction Index shows industry optimism at nearly 60, compared to slightly more than 54 the previous quarter. “The index shows strong momentum since the first quarter of 2021,” the report said.

But other industry groups are sounding warnings about the nonresidential slowdown. “Nearly every nonresidential spending segment has deteriorated from already inadequate 2020 levels in the first two-thirds of this year,” said Ken Simonson, the association’s chief economist in a report about construction spending stalling.  “Meanwhile, soaring materials costs mean that fixed public budgets buy even less infrastructure than before.”

The full extent of the commercial slowdown is evident in the third quarter Chamber of Commerce Commercial Construction Index: a quarterly economic index designed to gauge the outlook for, and resulting confidence in, the commercial construction industry. The Index comprises three leading indicators to gauge confidence in the commercial construction industry, generating a composite index on the scale of 0 to 100 that serves as an indicator of the health of the contractor segment quarterly.

The biggest problem the third-quarter index noted: The labor shortage.

“Almost all (92%) contractors report some level of difficulty. Finding skilled workers, but this quarter, 55% indicate high levels of difficulty—a jump of 10 percentage points for Q2. The lack of workers has caused 42% of those contractors reporting difficulty finding workers to turn down work, up from 35% in Q2,” the report said. “Also, a record 93% of contractors report they are facing at least one material shortage. Prices are also a worry: An all-time high of 98% of contractors say building product cost fluctuations are having an impact on their business, up 35 points year-over-year.”

It went on to say that 62% of contractors name less availability of building products/materials their top concern, followed by worker health and safety at 38% and an increase in worker shortages at 37%.

“This quarter’s Index findings demonstrate the fragility of our economy’s recovery from the COVID-19 pandemic. And unfortunately, these trends are not limited to the commercial construction industry,” said U.S. Chamber of Commerce EVP and Chief Policy Officer Neil Bradley. “… We need to address our worker shortages, including by doubling legal immigration, and address supply chain issues, including through tariff reductions.”

Key data from the report

The Index’s three key drivers were:

  • Revenue: Contractors’ revenue expectations over the next 12 months held steady at 61;
  • New Business Confidence: The overall level of contractor confidence increased to 64 (up two points from Q2 2021);
  • Backlog: The ratio of average current to ideal backlog rose three points to 74 (up two points from Q2 2021).

More findings:

  • Steel replaces lumber as the most-reported shortage. Reversing a year-long trend, the product which most contractors are experiencing a shortage of is steel (34%), followed closely by wood/lumber at 31%. Since Q3, lumber had been the most often reported shortage. Last quarter, 33% of contractors reported a lumber shortage, 29% reported a steel shortage;
  • Steel tariff concerns grow. As steel shortages worsen, 46% of contractors say steel and aluminum tariffs will have a high to very high degree of impact on their business in the next three years, up 11 points from 35% in Q1 2021;
  • Worker shortages are impacting business. This quarter, 73% of those contractors who report difficulty finding skilled labor say it’s a challenge to meet project deadline requirements (up from 56% in Q2), and 59% are putting in higher bids for projects (up from 50%).;
  • Equipment spending declines. More contractors report pulling back their purchasing plans this quarter: 40% say they will increase spending on tools and equipment over the next six months (down from 44% who said they would increase spending in Q2);
  • Contractors are less confident in their revenue expectations. The percentage of contractors who expect their revenue to increase (37%) is down two points from last quarter, while more contractors (10%) expect their revenue to decrease, up from 6% in Q2.
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