What recession? AIA Consensus Construction Forecast Panel optimistic about the construction outlook for this year and next

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["a",["href","http:\/\/info.aia.org\/aiarchitect\/2022\/charts\/Jul%202022\/ccf_071922.html","target","_new"]],["b"]],"sections":[[1,"blockquote",[[0,[0],1,"View the interactive Consensus Construction Forecast \u003E"]]],[1,"h2",[[0,[],0,"Commercial construction recover underway, and key\ninstitutional categories are bottoming out, but industrial sector seen as providing\ndisproportionate share of growth "]]],[1,"p",[[0,[],0,"Construction spending on buildings is projected to increase just\nover 9% this year and another 6% in 2023 according to the mid-year update of\nthe American Institute of Architect\u2019s AIA Consensus Construction Forecast. This\noutlook is somewhat more optimistic than what was projected at the beginning of\nthe year, largely due to the extremely strong gains in the manufacturing\ncategory, as well as surprising strength in retail facilities. "]]],[1,"p",[[0,[],0,"Both categories likely benefited from the gains in consumer\nspending on goods during the pandemic as spending on services faded.\nAdditionally, supply chain problems that affected the economy over the past two\nyears have encouraged manufacturers to reshore (i.e., supply domestically) a\nportion of their production while simultaneously increasing their storage\ncapacity to better cope with potential future disruptions. Warehousing and distribution facilities are\nclassified in the manufacturing category if they are located at the\nmanufacturing site, and otherwise in the retail and other commercial sector. The\ngrowth of e-commerce during the pandemic also dramatically increased the need\nfor distribution facilities. "]]],[1,"h3",[[0,[1],1,"Economic prospects worsen"]]],[1,"p",[[0,[],0,"Somewhat surprisingly, as the prospects for construction\nspending have improved since the beginning of the year, the outlook for the\nbroader economy has significantly deteriorated. \nA growing set of economic indicators have turned negative, and many\neconomists feel that the prospects of an economy-wide recession have increased.\nAmong the more worrisome indicators are: "]]],[3,"ul",[[[0,[1],1,"Stock market declines"],[0,[],0," \u2013 a bear market is defined as a 20% decline in stock prices from their\nmost recent peak. This threshold has been crossed in recent weeks."]],[[0,[1],1,"Inflation"],[0,[],0," \u2013\nconsumer prices have seen steady gains so far this year, with the June figure\nshowing a 9.1% increase over the past year. Producer prices have been just as\nvolatile, with the price of inputs to construction increasing in the 15% range\nin recent months."]],[[0,[1],1,"Interest rates"],[0,[],0," \u2013 the Federal Reserve Board has been aggressively raising short-term interest\nrates since the beginning of the year to help combat inflation. Three-month treasury\nbills increased 1.5 percentage points between January and July, with future\nrate hikes all but assured. The rate for 30-year fixed rate mortgages increased\nwell over two percentage points over the same period. "]],[[0,[1],1,"Consumer sentiment "],[0,[],0,"\u2013"],[0,[1],1," "],[0,[],0,"consumer sentiment scores fell with the onset of the pandemic in\nearly 2020, but then began to recover. However, as supply chain disruptions\ncaused inflation to accelerate beginning in early 2021, consumer sentiment\nbegan to plummet. Currently, consumer sentiment scores are about as low as they\nhave ever been since the University of Michigan began collecting them in the early\n1950s. One explanation for the unusually sharp decline in these scores is that\nthey are highly correlated with retail gasoline prices. The recent jump in\ngasoline prices coupled with growing recession fears has apparently produced\nconcerns over where the economy is headed. "]],[[0,[1],1,"Business confidence "],[0,[],0,"\u2013 While business confidence scores, as measured by the Conference Board\u2019s\nCEO Business Confidence Index, have only turned negative in recent months, they\nare coming off their highest recorded levels of several decades. The\nprecipitous drop in stock prices and the pessimistic outlook for corporate\nprofits obviously are key factors in this decline. "]],[[0,[1],1,"Housing starts "],[0,[],0,"\u2013\nthe housing and home improvement industries have been one of the few bright\nlights in the economy during the pandemic. Housing starts nationally increased\n7% in 2020 as the pandemic set in, and another 16% in 2021. This year,\nhomebuilding has been on a pace to produce another healthy gain. However, sharp\ngains in house prices \u2013 they have been growing at a 20% annual pace in recent\nmonths \u2013 as well as increased mortgage rates \u2013 have dampened households\u2019\nwillingness as well as their ability to purchase a home. Since housing is\ntraditionally a leading indicator of the economy, this emerging weakness is a\nconcern for future economic growth."]]]],[1,"h3",[[0,[1],1,"A strong jobs market"]]],[1,"p",[[0,[],0,"The employment situation is notably at odds with the growing\nlist of negative economic indicators. The economy has added over 20 million\npayroll positions since the lows of the pandemic, and the national unemployment\nrate is well below 4%. Businesses have many more positions to fill than there\nare candidates to fill them, leading to serious labor shortages in many industries.\n"]]],[1,"p",[[0,[],0,"Still, the national labor force is smaller than it was prior\nto the pandemic, and there is no shortage of theories offered for this scarcity\nof available workers. One is that the pandemic encouraged many older workers to\nretire earlier than might be expected. Another is that the time at home during\nthe pandemic encouraged a \u201cgreat resignation\u201d where workers are leaving their\ncurrent employment to look for better paying jobs, or opportunities that\nprovide the option for remote work. However, the most plausible explanation is\nthat workers have been responding to the unique circumstances of the pandemic\nwhere there were unusually high levels of illness coupled with child-care and other\nfamily-care responsibilities that prevented these caregivers from re-entering\nthe labor force. "]]],[1,"p",[[0,[],0,"What\u2019s the evidence of this? Despite\na recent decline in the size of our labor force compared to pre-pandemic\nlevels, the number of men in the labor force has increased by almost 600,000,\nwhile the number of women has declined by almost 700,000. This theory is\nreinforced by the age distribution of the labor force. The age category that\nsaw the steepest labor force losses over the past two years is 18\u201334-year-olds,\nwhich suggests that child-care or other family-care responsibilities may have\nencouraged many women to leave the workforce. "]]],[1,"h3",[[0,[1],1,"Building\nactivity finally recovering"]]],[1,"p",[[0,[],0,"The\nconstruction industry is not without its own set of challenges. Supply chain\ndisruptions coupled with general inflation has pushed up inputs to construction\nby almost 15% over the past year. Most contractors are facing labor shortages\nwhich pushes out construction schedules, and rising interest rates are lowering\ncommercial property values, thereby making new construction projects less\nprofitable. "]]],[1,"p",[[0,[],0,"However,\nchallenges to the economy and the construction industry notwithstanding, the\noutlook for the nonresidential building market appears promising for this year\nand next. Construction spending has picked up through the first half of the\nyear, particularly for retail and manufacturing facilities. The AIA\u2019s\nArchitecture Billing Index (ABI) points to further growth in the coming\nquarters. The ABI has been positive every month since February 2021, and for\nover half of these months the ABI score was at least 55, considered to reflect\nvery healthy growth in revenue at architecture firms. "]]],[1,"p",[[0,[],0,"Furthermore,\nnew project work coming into architecture firms, as well as inquiries for\nfuture projects, have been very strong, indicating design revenue at\narchitecture firms will continue to grow. Growing workloads have pushed up\nbacklogs at architecture firms, now averaging seven months and near their\nhighest level since before the Great Recession. "]]],[1,"p",[[0,[],0,"Since the\nABI has been shown to lead construction spending activity by 9-12 months, the\nbuilding construction market is projected to see healthy gains this year and into\n2023. The AIA Consensus Forecast Panel is projecting a 9.1% increase in\nspending for nonresidential buildings this year, and an additional 6.0% next\nyear. The commercial construction market is projected to see mid-single-digit\npercentage gains both this year and next, spurred by strong growth in the\nretail and other commercial facilities. Modest gains in the office sector this\nyear are expected to accelerate a bit in 2023, and the hard-hit hotel sector is\nfinally projected to recover next year. "]]],[1,"p",[[0,[],0,"While the industrial market is expected to pace the building\nconstruction upturn this year and next, the institutional sector is forecast to\nbegin its recovery this year and accelerate moving into 2023. Given the diverse\ncollection of facilities in this category, the institutional recovery will be\nuneven. Construction spending in the healthcare sector never declined during\nthe pandemic, and this strength is projected to continue with 5%-6% gains both\nthis year and next. "]]],[1,"p",[[0,[],0,"The education market suffered from remote learning as there\nwas less immediate need to renovate older facilities or build new ones.\nHowever, with most educational institutions back to in-person formats,\nmodernization and added space needs will be more apparent, with growth\nprojected at 2% this year and an additional 5% in 2023. Finally, there is\nsignificant pent-up demand for amusement and recreation facilities as these\nactivities begin to return to normal and delayed projects come back on-line.\nThe forecast panel is projecting upper-single digit percentage gains in spending\nfor this category for both this year and next. "]]],[1,"p",[]],[1,"blockquote",[[0,[0],1,"View the interactive Consensus Construction Forecast \u003E"]]]]}