Published March 18, 2024
Revenue from construction projects across the United States saw overall growth of just 1 percent in 2023—all attributable to inflation rather than increased activity. That’s according to the latest market analysis from the Cumming Group, a Seattle-based global construction management and cost-consulting firm.
Despite that uninspiring figure, confidence remains strong within the industry, according to the newest version of Cumming’s annual report on the construction economy. That’s because the past few years of pandemic-driven volatility across the U.S. economy has eased. The saw-toothed trend lines of material costs, labor supply and interest rates have smoothed out and now look more like they did before the upheavals of the pandemic.
It doesn’t mean an end to the industry’s structural challenges, but it does allow for improved visibility and a sense of normalcy.
At this time last year, economists were counting down to a likely recession, and despite a healthy backlog of construction projects, executives at the largest construction firms were on edge. But in late 2023, the Federal Reserve ended its period of interest rate hikes, signaling a soft landing for the economy and much-reduced risk of recession.
One of the main reasons for confidence is the expectation of increased federal support in 2024 for big manufacturing, transportation and energy infrastructure projects—based on three pandemic-era spending initiatives:
- The 2021 Infrastructure Investment and Jobs Act, which allocates $1.2 trillion to rebuilding roads and bridges, improving the power grid, and a range of other infrastructure needs.
- The 2022 federal CHIPS and Science Act, which allocates more than $100 billion to increase American independence in manufacturing semiconductors and telecommunications equipment.
- The 2022 Inflation Reduction Act’s $115 billion investment in clean energy projects, electric vehicle production and EV battery plants.
Overall, according to the Cumming Group, executives anticipate a slight increase in construction volume in 2024, with improved staffing levels and higher profit margins. While the residential sector is still facing challenges with a projected decrease of about 9 percent, the report says that will be more than offset by commercial projects in just about every sector except traditional office space.
Material Costs and the Bullwhip Effect
The bullwhip effect is a fundamental concept in supply chain management that has driven volatility in the pricing of construction supplies and materials for the past four years.
The bullwhip effect describes how variables in demand get amplified as they move upstream in the supply chain. Essentially, small fluctuations in orders by end-users lead to larger swings in orders placed by retailers, wholesalers and manufacturers—resulting in costly mismatches between what people want to buy and what’s available.
According to Cumming, manufacturers are just now gaining control of the bullwhip effect with respect to construction materials; supplies are now generally aligned with demand, and pricing is stabilizing—though not necessarily decreasing.
Prices have continued to rise for concrete products:
- Prestressed concrete prices are up 16.1 percent from the same time last year;
- Concrete block is up 10.3 percent;
- Ready-mixed concrete is up 7.8 percent;
- Precast concrete is up 5.6 percent.
Other goods that continue to rise in price include metal bar joists and rebar (9.8 percent); construction machinery (7.6 percent); fabricated structural steel (5.6 percent); brick and structural clay tile (5.5 percent); asphalt roofing (2.8 percent); and insulation materials (0.9 percent).
However, lumber and plywood prices are down 8.0 percent from a year ago; steel pipe and tube products are down 17.6 percent; plastic construction products are down 3.2 percent; and gypsum products are down 1.7 percent.
Energy costs that drive construction expenses have also come down. U.S. retail gasoline prices peaked in June 2022 at an average of $5.11 per gallon. As of Feb. 26, 2024, the average price per gallon was $3.36—an improvement of 34 percent. Natural gas prices are down more than 50 percent from a year ago.
Labor
According to the Cumming analysis, the U.S. Bureau of Labor Statistics recorded 4 percent growth in the size of the construction labor force in 2023 while the unemployment rate remained steady—also at about 4 percent.
But the fundamentals of the construction labor market haven’t changed: Aging members of the workforce are leaving the industry faster than they can be replaced. Associated Builders and Contractors projects a need for the industry to add at least 342,000 new workers in 2024.
The manpower crunch affects all aspects of the industry—on-site labor, of course, but also manufacturing and shipping/trucking of supplies and equipment.
As a result, the average hourly wage for construction was $37.24 at the end of 2023, up 7 percent from the previous year—and up 19 percent from pre-pandemic levels. Wages are expected to continue increasing, due to the shortage of workers.
As a result, while 69 percent of construction firms project the need to add employees over the course of 2024, 68 percent of them are struggling to fill positions that are already open.
Sector Overview
With mortgage rates still elevated (the average rate for a 30-year fixed mortgage is over 7 percent), the single-family residential construction market is expected to remain soft for the first half of 2024, with the possibility of improved housing starts later in the year, according to Cumming Group. The multifamily residential sector is likely to grow at a faster clip.
At the other end of the spectrum, construction in manufacturing grew 62 percent in 2023 and is expected to remain strong this year, thanks to the federal funding initiatives highlighted earlier.
Other sectors showing strong growth potential include healthcare, data centers, senior assisted living, logistics and culture/entertainment.
Interested in more detail? The Cumming Group Q4-2023 Market Analysis is available for free download at https://insights.cumming-group.com/.
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