Homebuilder Sentiment Reaches Record High
According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder sentiment increased 5 points to 83 in September, the highest reading in the survey’s 35 years. Any reading above 50 indicates improving confidence. The index saw increases in all three of its components: current sales conditions increased 4 points to 88; sales expectations in the next six months rose 6 points to 84, and the traffic of prospective buyers increased 9 points to 73.1
Home Construction Increases with Demand
Low interest rates and limited inventory in the housing market are driving increases in single-family home construction. New single-family home sales rose nearly 14% from June to July, to a new seasonally adjusted rate of 901,000, the highest rate since December 2006. The home-building sector's positive outlook represents a stark contrast to early spring 2020 when coronavirus shutdowns across the country caused construction to halt.2
Lumber Prices Increasing Rapidly
Lumber prices have risen 130% from April to September of 2020 because of lower supply and increased demand. As COVID-19 related shutdowns and social distancing measures reduce capacity at lumber mills, demand for lumber is growing rapidly in response to increasing home construction and damages from large storms and wildfires throughout the country. Tariffs from Canadian lumber mills are also contributing to rising price levels.3
Construction Industry Strained by Skilled Labor Shortages
83% of contractors report moderate to high levels of difficulty finding skilled workers according to the U.S. Chamber of Commerce Quarter 3 Commercial Construction Index. Of those contractors, 36% reported turning down work due to insufficient labor, representing an increase from quarter 2. Contractors are pessimistic about the future of skilled labor, with 62% of survey respondents reporting that they expect the problem to remain the same in the coming months.4
Demand for Building Plastics Rises
Plastic is growing in popularity in building due to its physical properties, low cost, and recyclability. Pipes and ducts account for nearly 35% of the building plastic industry, followed by insulation and door fitting segments. The global building and construction plastics market is forecasted to grow at a 7.1% annual rate.5
Artificial Intelligence Institute to Improve Construction
The University of Illinois has received grants from the U.S. government’s National Science Foundation and the Discovery Partners Institute to set up the National Institute for Artificial Intelligence in Construction. The initiative will pair interdisciplinary scientists with 40 construction industry partners to address productivity and safety problems within the industry.6
House Republicans Introduce the BUILDER Act
The Building U.S. Infrastructure Through Limited Delays & Efficiency Reviews (BUILDER) Act was introduced to the House of Representatives. The act aims to codify the National Environmental Policy Act (NEPA) rulemaking. If passed, this legislation would include improving NEPA review efficiency and clarifying when NEPA review is needed. This legislation would ultimately eliminate unnecessary delays and reduce costs in the construction industry.7
Commercial Contractor Confidence Improves
Commercial contractors’ confidence in the market's ability to provide new business in the next 12 months has improved. According to the U.S. Chamber of Commerce Quarter 3 Commercial Construction Index, contractor confidence is up 6 points to 56 from 50 in quarter 2. Revenue expectations have also improved slightly from Quarter 2, as many contractors have seen construction projects return after the initial pandemic shutdowns. The revenue expectation index for Quarter 3 was reported at 48, compared to 44 in Quarter 2 and 70 in pre-pandemic Quarter 1.8
Backlogs Affecting Commercial Construction
The ratio of current average backlogs to ideal backlogs has fallen 5 points to 68 this quarter within the commercial construction industry. This decrease represents an even larger drop from the pre-pandemic score of 76 in quarter 1. The COVID-19 crisis’s impact on backlog may continue for several more months as an average share of 26% of projects face delays.9
Largest Transactions Closed
- Turf Design, Inc.
- Armstrong World Industries, Inc.
- Delta Railroad Construction, Inc.
- Salcef USA, Inc.
- Alta Vista Solutions, Inc.
- Atlas Technical Consultants
- Quarry Segment of Americold Realty Trust
- Undisclosed Buyer
- ART Quarry TRS LLC
- United States Lime & Minerals, Inc.
- Utility Management Corp.
- Renavotio Infratech, Inc.
- PERC Water Corporation
- Consolidated Water Co., Ltd.
Source S&P Capital IQ as of 10/13/2020 and PCE Proprietary Data
This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.
EBIT - Earnings Before Interest and Taxes