Published October 17, 2024
As 2024 nears an end, the construction industry is still being driven by a large-scale economic realignment triggered by the COVID-19 pandemic. It’s having both positive and negative affects across construction sectors, and it creates a mixed picture of the industry’s overall status, according to the 2nd quarter market analysis from the Cumming Group construction management firm.
Most recently, the big headline was the Federal Reserve’s interest rate cut in September. It had been anticipated for months, and was the first rate cut since March 2020—the very beginning of the pandemic.
So the good news is that after more than four years of looming recession, economists are now in general agreement that the Fed has engineered a rare soft landing of the U.S. economy—even while most of the world continues to struggle.
But construction spending is a lagging economic indicator, so the full impact of the Fed’s shift in policy won’t be apparent to builders until well into 2025, industry experts agree.
Even then, it’s likely to be muted. That’s partly because spending from four big federal initiatives –
– will begin winding down. Those laws have fed robust construction activity for infrastructure, healthcare and industry—specifically manufacturing facilities and data centers.
Throw in the issues of global political instability and that overarching economic realignment from the pandemic, and it’s easy to see why the construction industry will continue to feel like it’s stumbling along.
Overall, total construction spending has increased 41% since the recession, according to Construction Dive, an online trade journal.
Cumming Group projects that by the time all the data are in, 2024 construction spending will beat last year by 5%, hitting a record of $1.42 trillion. It forecasts a dip of about 0.5% in each of the next two years.
While industrial building has led the industry, the office sector will continue to run both hot and cold. Businesses across the U.S. are bringing workers back into the office and are spending lavishly to make new facilities better for them, according to Cumming Group’s analysis. But remote work isn’t going away altogether, so the improved spaces are only meant to accommodate six in 10 workers.
The way that looks on the job site is more repositioning projects of existing facilities; fewer starts on large new facilities; and a stubborn oversupply of old, underutilized buildings.
While continued interest rate cuts will result in new housing starts, the terrain remains bumpy for the residential construction sector. Rising housing costs over the past four years have created a shortage of affordable and entry-level housing, so there is plenty of residential demand. But tight lending requirements have made these projects difficult to finance even while luxury projects continue to break ground at a healthy pace.
Through August, the cost of construction materials and other inputs was down by about 1% from a year ago, according to the national trade association Associated Building Contractors (ABC). That’s the second such drop in two years, reflecting supply chain improvements as well as inflation coming back under control.
But much of the drop is attributable to falling energy costs, with natural gas down 29.8% since last year and petroleum down 7.5%. With the wars in Ukraine and the Middle East adding volatility to energy costs, those savings could disappear at any time, so that’s another counterweight to optimism.
In construction commodities, costs for structural steel, lumber, aluminum mill shapes and plastic construction products are all down from a year ago, according to Cumming Group.
Commodities that have continued to rise in price include all variety of concrete products, insulation materials, siding and roofing materials, sheet metal and copper and brass mill shapes.
Materials that are holding steady – with overall changes of less than 1% – include gypsum products, architectural coatings, rebar and flat glass products.
In the first nine months of 2024, the construction industry added 238,000 jobs for a 3% overall increase, according to national trade group Associated Building Contractors (ABC).
Meanwhile, according to the Cumming Group analysis:
ABC’s construction backlog indicator estimates the amount of work contractors expect to be doing in the future. It stood at 8.2 months at the end of August, down from 9.2 months at the same time last year. Backlogs are highest in the South (9.1 months) and Northeast (8.1 months), and lower in the Midwest (7.7 months) and West (7.4 months).
Finally, overall confidence among construction industry leaders has softened, according to ABC’s Construction Confidence Index, with two out of three categories still scoring above 50, indicating anticipated growth over the next six months.
When all of these issues are considered, the construction industry is fundamentally strong moving toward 2025—but with no shortage of things to worry about.
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