Find out why your contractor might choose prefab and modular materials for your next construction project

by Brianna Crandall — March 30, 2018 — The recently released Q1 2018 USG Corporation + U.S. Chamber of Commerce Commercial Construction Index reveals nearly two-thirds of contractors are highly confident that demand for commercial construction will increase over the next year; however, continued concerns around labor shortages have put even greater pressure on the industry. To increase jobsite efficiency and improve labor productivity, increasingly more builders are turning to alternative construction solutions such as prefabrication and modularization, according to the first quarter (Q1) report.

The Q1 Index indicates contractors turn to innovations such as prefabricated and modular building materials to create more efficient jobsites (89%), increase labor productivity (85%), drive cost savings (58%), and provide a competitive advantage in the marketplace (51%). In fact, 50% of contractors report their companies already use prefabricated and modular components, and the number was even higher among general contractors (72%). Nearly two-thirds (63%) of contractors report at least moderate demand for these building materials.

Jennifer Scanlon, president and chief executive officer (CEO) of USG Corporation, stated:

Access to skilled labor is a continued concern, which has led contractors to increasingly seek solutions that help offset jobsite challenges. There is significant opportunity to introduce innovations that confront jobsite efficiency and strengthen the industry — such as solutions that enable prefabricated and modular building components.

Contractors in the Northeast (69%) reported the most frequent usage of prefabricated and modular components as compared to the South, where only 24% indicate their companies are using these materials. Firms in the Northeast also expect to hire fewer workers — 38% of contractors in the region expect to employ more staff in the next six months, compared with 57% in the South, 59% in the West, and 68% in the Midwest. Across all regions, concern over the cost of hiring skilled labor has remained consistent over the past year — nearly two-thirds (64%) of contractors expect these costs to increase in the next six months.

Despite labor concerns, contractor sentiment remained steady for the first quarter as a result of strong revenue expectations and higher profit margins, with a composite score of 74.

Thomas J. Donohue, president and CEO of the U.S. Chamber, remarked:

As we work to continually build our neighborhoods, towns, regions, and roads, as well as the workforce that supports our growth, innovation becomes a key component in advancing our country into the 21st century. We must invest in a skilled, competitive, motivated workforce and embrace new innovations to ensure we are able to compete on a global scale.

The Index looks at the results of three leading indicators to gauge confidence in the commercial construction industry — backlog levels, new business opportunities, and revenue forecasts — generating a composite index on a scale of 0 to 100 that serves as an indicator of health for the contractor segment on a quarterly basis. The Q1 2018 composite score was 74, holding steady from Q4 2017.

The Q1 2018 results from the three key drivers were:

  • Backlog: On average, contractors currently hold 8.9 months of backlog, relatively close to the average ideal amount of 12.2 months, continuing the stability of the market, although there is room for growth. Down two points from Q4 2017, this represents 73% of ideal backlog levels.
  • New Business: Nearly all (98%) contractors report high or moderate confidence in the demand for commercial construction. Year-over-year, the number of contractors who have high confidence in demand over the next 12 months jumped 11 percentage points (from 51% in Q1 2017 to 62% in Q1 2018).
  • Revenues: Over half (54%) of contractors expect to see revenue gains in the next year. This percentage jumped seven points from last quarter (47% in Q4 2017).

The USG Corporation + U.S. Chamber of Commerce Commercial Construction Index is a quarterly economic index designed to gauge the outlook for, and resulting confidence in, the commercial construction industry. USG Corporation, manufacturer of building products and innovative solutions, and the U.S. Chamber of Commerce business federation produce this Index, along with Dodge Data & Analytics (DD&A), provider of insights and data for the construction industry.

Each quarter, researchers from DD&A source responses from their Contractor Panel of more than 2,700 commercial construction decision-makers in order to better understand their levels of confidence in the industry and other key trends. This panel allows DD&A to provide findings that are said to be representative of the entire US construction industry by geography, size, and type of company.

The Q1 2018 Index as well as each quarterly Index are available from both the USG and U.S. Chamber Web sites for free download.