Recovery in building construction projected to continue into 2023

Submitted by Jessica Mentz on Fri, 01/14/2022 - 14:04
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"]]],[1,"p",[[0,[],0,"The construction spending downturn was widespread last year.\nOnly retail and other commercial, industrial, and health care facilities managed\nto eke out spending increases. This year, only the hotel, religious, and public\nsafety sectors are expected to continue to decline. By 2023, all the major\ncommercial, industrial, and institutional categories are projected to see at\nleast reasonably healthy gains."]]],[1,"p",[[0,[1],1,"Economic challenges abound"]]],[1,"p",[[0,[],0,"The\nbroader economy has seen a solid recovery since the depths of the\npandemic-induced recession. It grew by about 5% last year and now has fully\nrecovered from the past recession. There were almost 4 million net new payroll\npositions added last year, bringing national employment almost back to the\nlevel it was at in February 2020 prior to the pandemic. The national\nunemployment rate was 3.9% at the end of last year, just above the 3.5% rate in\nFebruary 2020. "]]],[1,"p",[[0,[],0,"In\nspite of these positive economic indicators, there are several headwinds to\nfuture economic growth. The uncertainty surrounding combatting Covid and its\nvariants have added tremendous uncertainty to future building needs. The Biden\nAdministration\u2019s Build Back Better program was slated to add significant support\nto the construction sector, but its funding is very much in doubt at present\n(January 2022). Supply chain disruptions are likely to continue slow economic\ngrowth well into this year. Inflation accelerated during the second half of\nlast year to its highest rate in almost four decades, which is expected to put\nupward pressure on interest rates. Finally, the already-serious labor shortages\nlook to become even more severe this year and next."]]],[1,"p",[[0,[],0,"While moderating, supply chain disruptions continue for\nmany materials and products, and are expected to be problematic throughout most\nof 2022. The pandemic continues to cause delays for many producers, and this\nsituation is exacerbated due to the growing reliance of the US economy on\nimports. Imports as a share of US production has more than quadrupled since the\npost-World War II era. Just as critically, a growing share of US imports come\nfrom developing countries where the infrastructure typically is not as robust,\nand where the pandemic often has had a greater impact on the production and\ntransport of goods. Construction has been particularly hard hit by supply chain\ndelays. Construction input costs overall rose about 20% last year, with some\nproducts (steel and oil-based products are examples) rising more than 50%. "]]],[1,"p",[[0,[],0,"The pace of inflation has surged recently. Consumer prices\nwere increasing 7% annually at the end of last year, while producer (wholesale)\nprices were increasing at an even faster pace. Given the strength of the\neconomy, this high rate of inflation will force up interest rates. Short-term\nrates are expected to rise about three-quarters of a percentage point by the\nend of the year, with long-term rates rising by a similar amount. "]]],[1,"p",[[0,[],0,"Adding to inflationary pressures is the surprisingly tight\nlabor market. The economy has added back most of the over 22 million payroll\npositions lost during the pandemic. Building construction contractors have seen\na comparable share recovery in payroll employment. Notably, architecture firms\nare one of the few sectors of the economy where employment had exceeded it\npre-pandemic high by the fourth quarter of last year. "]]],[1,"p",[[0,[],0,"Industries throughout the economy are finding it\nchallenging to retain their current employees and are having difficulty\nrecruiting new ones. Most workers feel that jobs are plentiful, and therefore\nare increasingly comfortable leaving their current job in favor of searching\nfor a better one. A recent survey of architecture firm leaders found that more\nthan four in ten feel that recruiting architectural staff is a serious problem\nat present, and that it may create difficulties for the firm over the coming\nmonths given anticipated project workloads. "]]],[1,"p",[[0,[2],1,"The residential market leads the way"]]],[1,"p",[[0,[],0,"A\nconstruction cycle generally starts with the homebuilding and home improvement\nsector, and then moves to commercial, industrial, and institutional facilities.\nNew housing developments generate demand for office, retail, and lodging space\ninitially, and eventually for institutional facilities like schools,\nhealthcare, and religious facilities. However, over the past decade we haven\u2019t\nseen traditional construction cycles due to weakness in the residential sector resulting\nfrom the collapse in the housing market leading up to the Great Recession. "]]],[1,"p",[[0,[],0,"Quite\nunexpectedly, the pandemic kick-started the housing market. As households were\nfleeing urban areas and moving to larger homes in the suburbs and exurbs given their\ndesire for additional space, the housing market flourished. Housing starts\nnationally increased by about 7% in 2020 even as economic activity crashed in\nthe early days of the pandemic. Last year, housing starts increased another 15%\nto their strongest level of production since 2006. While the multifamily side was\nmuch stronger in the years following the Great Recession, during the pandemic\nsingle-family construction has dominated, accounting for almost 80% of the gain\nin residential construction activity over the past two years. "]]],[1,"p",[[0,[],0,"However,\nthese gains were not evenly spread across the country, suggesting that the\nrebound in nonresidential construction activity will also have regional\ndimensions. Population flows last year favored southern and inland western\nregions of the country where housing tends to be more affordable. The US Census\nBureau reported that population growth in the US last year was a minuscule\n0.1%. However, eight states (Idaho, Montana, Utah, Arizona, South Carolina, and\nTexas) saw their population increase by more that 1%, topped by Idaho\u2019s 2.9%\nincrease in population. Nine additional states saw their population grow by at\nleast 0.5%, and five of these nine states were in the South region. "]]],[1,"p",[[0,[2],1,"Building\nactivity on the rebound "]]],[1,"p",[[0,[],0,"Challenges\nto the economy and the construction industry notwithstanding, the outlook for\nthe nonresidential building market looks promising for this year and next. One\nsolid indication of the outlook is the recent upturn in design activity at\narchitecture firms. After a decline in January 2021, architecture firms\nreported strong growth in billings for the remainder of the year. In fact, last\nyear had the highest average scores for the Architecture Billing Index since\n2007. On average, revenue at architecture firms increased almost 6% last year.\nThis year, even more growth in revenue is expected, almost 7% on average."]]],[1,"p",[[0,[],0,"As a\nresult, the building construction market is projected to see healthy gains this\nyear and next. The commercial construction market was expected to be the hardest\nhit by the pandemic and to experience the weakest recovery. Remote work meant\nless need for offices, e-commerce reduced the demand for traditional brick and\nmortar retail, and travel cutbacks dramatically cut into the lodging market.\nWhile the commercial market has been generally lackluster since the pandemic\nhit, some sectors have done surprisingly well. Retail space, in particular, was\none of the few major sectors to see an increase in construction activity last\nyear, reflecting consumer spending on goods given the limited desire to\npurchase services. Some of the strength in the commercial sector came from\nrepurposing existing space to uses more in demand. Commercial construction\nactivity is projected to see growth of just under 5% this year, and an\nadditional 5.3% in 2023, and as such is one of the biggest surprises in the\nconstruction outlook. "]]],[1,"p",[[0,[],0,"The industrial market is expected to pace the building\nconstruction upturn this year and next, with projected gains of over 9% this year\nand more than 8% in 2023. This sector has been one of the few in nonresidential\nconstruction to benefit from the pandemic. The strong growth in e-commerce\nduring the pandemic meant increased need for distribution facilities.\nAdditionally, supply chain problems have provided the incentive for companies\nto increase their domestic production in an effort to avoid the long delays\noften seen with imported goods."]]],[1,"p",[[0,[],0,"The institutional sector tends to be the last to recover from\na downturn, and that looks to be the case with this cycle. After a fairly steep\ndecline last year, overall growth for these facilities is projected to increase\nalmost 4.5% this year and 5% next. The two largest institutional categories\nmoved in opposite directions last year. Healthcare construction eked out a small\ngain when almost all other sectors declined, and is projected to see growth of\n6% both this year and next. Education, with reduced need for facilities given\nthe widespread reliance on remote learning, saw a decline last year, and is\nprojected to see a rebound of 3.5% this year before benefitting from\naccelerating growth in 2023. "]]],[1,"blockquote",[[0,[0],1,"View the interactive Consensus Construction Forecast \u003E"]]]]}
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Industrial sector seen as strongest, but commercial upturn anticipated to be surprisingly robust
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Screenshot from the Consensus Construction Forecast, January 2022. Click the link below to view individual forecast details.
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Pent-up demand from the pandemic is creating a general spending surge, and construction looks to get its share of the benefits in the next two years.
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