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Felix Lopez, left, and Alejandro Merida, both carpenters with Wood Mechanix, raise a wall while building a mixed-use apartment building in southeast Portland last month. The shortage of skilled labor continues to be a major cause for concern among contractors, according to the USG Corporation + U.S. Chamber of Commerce Commercial Construction Index. (Sam Tenney/91��Ƶ file)

Contractors nationwide remain optimistic about the state of the construction industry, according to the most recent USG Corporation + U.S. Chamber of Commerce Commercial Construction Index.

Released June 5, the report for the second quarter of 2018 provides a snapshot of market conditions via a survey of contractors. The main takeaway is that while work backlogs and revenue expectations remain strong, the ongoing shortage of skilled labor is causing increasing concern among general contractors who fear it might erode their ability to carry out projects. This is the fourth straight quarter in which more than 90 percent of contractors surveyed have expressed concern over labor shortages.

“Confidence is solid; we’re happy with where we’re at,” said Brandon Flint, vice president of operations at Aloha-based INLINE Commercial Construction. “We do feel like it’s plateaued a little bit, predominantly because of the workforce shortage. We’re sort of maxed out on the work we can perform.”

The ongoing dearth of skilled tradespeople is having noticeable effects. Wages have risen by as much as a third in some trades, and development of project schedules has become much more challenging for general contractors.

“I don’t think people understand how big of an issue it is,” Flint said.

It appears to be systemic.

“There really isn’t a quick fix out there,” said Mike Salsgiver, executive director of Associated General Contractors’ Oregon-Columbia chapter.

The recession forced companies to do more with fewer personnel, Salsgiver added. But eventually demand ramped up significantly.

“It served them well,” he said. “But when the recovery kicked in, we’re now starting to see the outer limits of that. At some point you need to bring more companies on line.”

Further, rising costs of materials, particularly steel, is another area of concern. According to the report, 86 percent of contractors surveyed expect new tariffs on imported steel and aluminum to have a “moderate to severe impact” on their business over the next three years. More specifically, 63 percent of respondents said that steel is their top material of concern in this regard.

“It’s unfortunate we’re seeing that kind of dynamic at a time when the economy is doing well,” Salsgiver said. “We’re not supporters of tariffs; they generally do not help the economy and there’s all sorts of data out there to show this.”

A separate analysis of U.S. Department of Labor producer price indexes and employment cost indexes released by the Associated General Contractors of America last month showed that the costs of numerous materials critical to construction have risen significantly over the past year.

“We’re feeling the same impact everyone else is,” Flint said. “The biggest challenge we’re having is subcontractors in particular won’t maintain their pricing longer than about a week, so it’s making it extremely hard to negotiate deals or maintain costs.”

The AGC report shows that steel milled product prices jumped 10.5 percent, fabricated structural metal prices went up 13.1 percent, steel pipe and tube prices rose 13.3 percent and aluminum mill shape prices increased by 17.3 percent. Also, lumber and plywood costs increased 13.9 percent, in part because of tariffs imposed on Canadian soft woods in April 2017.

Finally, the spiraling price of diesel fuel is also getting attention. It rose a whopping 44.5 percent over the last 12 months. Between April and May 2018, the price of diesel rose 8.8 percent.

Overall, the cost of all goods used in construction rose a cumulative 8.8 percent from May 2017 to May 2018.

“The recession left a lot of money washing around,” Salsgiver said. “And when the money started to move, the economy picked up at a pretty white-hot pace, so you would expect to see material prices increase in that context.”

And regardless of tariffs, work backlogs are sitting at an average of 9.3 months; the ideal is 12.7 months, according to the report. Meanwhile, 96 percent of survey respondents have high or moderate confidence in the demand for commercial construction, while 52 percent expect their revenues to increase over the next year.