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While there are several risks facing the U.S. economy and the construction sector in 2023, the most pressing concern is the ongoing battle over raising the debt ceiling, which could have significant repercussions for government spending and overall economic stability.

In the second quarter edition of the Construction Market Forecasting Service (CMFS) released in May 2023, it was assumed that the U.S. economy would barely avoid recession in 2023 thanks to the strength in the labor market and the debt ceiling would be raised before the X date (the date at which the government could no longer pay its bills), which as of writing is projected to be in early June.

Under this scenario, construction starts would muddle through 2023, rising 2% from the previous year. Private markets (residential, office, hotel, warehouse, etc.) would feel pressure while public markets (infrastructure, education, healthcare) would offset the negativity. Manufacturing, and the inclusion of the CHIPs and Inflation Reduction Act (IRA) monies, have transitioned this sector into a quasi-public sector (for the short-term at least), and as such it will also lend support to the industry in 2023.

But what if the debt ceiling assumption didn’t pan out and the U.S. breached?

Moody’s Analytics recently published two debt ceiling breach scenarios:

Short Breach: The debt limit is breached in early June, but Congress resolves the crisis a week after the breach. The U.S. enters a brief recession.

Prolonged Breach: The debt limit is breached in early June and lawmakers don’t solve the issue until the end of July. This deals a blow to the U.S. economy and triggers a deeper recession.

The Dodge Construction Network Economics Group ran these two alternative scenarios through our econometric construction starts models to get a sense of how construction starts would react.

Under the short breach scenario, total construction starts would go from climbing 2% in 2023 to falling 3%, and barely expanding in 2024. In many ways, this scenario is fairly similar to the baseline, albeit with greater amplitude for the individual verticals. Residential and commercial (retail, warehouse, office, hotel) starts would fall into deeper holes in 2023 and remain negative in 2024. Since the breach is short, public markets will continue to be supported by funds from IIJA, CHIPs, and IRA although the second and third quarters of 2023 would see weakness.

The much more somber scenario is the prolonged breach. Under this scenario, construction starts would fall 14% in 2023 (compared to +2% in the baseline) and fall a further 9% in 2024. In many ways, this is akin to the impact of the financial crisis on starts in the 2007-2009 period.

Much like the financial crisis, all verticals – even those buoyed by IIJA, CHIPs, and IRA – would suffer in 2023 and 2024. From peak to trough, total construction starts would lose roughly 30%. This is more “mild” relative to the 40% peak-to-trough decline in 2007-2009 as it is assumed that IIJA, CHIPs, and IRA funds would begin to slowly flow back into the market in Q4 of 2023.

While the comparison to the Great Recession is convenient, this is where it ends.  Unlike the 2007-2009 period, there are no significant systemic issues facing the economy – there are no asset bubbles, banks are well capitalized etc. Inflation is a problem, but the Fed is slowly winning the battle. This will translate into a healthy recovery in construction starts by late 2024 in the prolonged breach scenario and early 2024 in the short breach scenario.

While these two scenarios seem unlikely to occur, it is safe to assume that brinksmanship in Washington will take raising the debt ceiling down to the wire. Considering that, it would seem prudent to hope for the best, but prepare for the worst.

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The recent Producer Price Index (PPI) report from the Bureau of Labor Statistics reveals that prices for final demand rose 0.2% in April. The PPI measures the average change over time in the prices manufacturers and producers receive for the goods they sell. This moderate increase still signals inflationary pressures in the economy, emphasizing the ongoing challenge of managing costs in the current economic climate.

This increase could impact the construction industry, which heavily relies on raw materials and supplies. The red line on the graph, which represents the year-over-year percent change in a composite index of construction materials, has seen an upturn, which could be concerning as it leads the bid price, represented by the blue line, by 12 months; if sustained, this could potentially lead to a re-acceleration in bid prices in 2024, just as building markets are expected to improve following the slowdown in 2023. As we navigate these uncertain times, construction firms must remain vigilant and adapt to evolving market conditions by closely monitoring their costs and adjusting their pricing strategies to stay competitive. Let’s continue to keep an eye on key indicators like the PPI to make informed decisions for our business and clients. Stay tuned for more updates and insights.

About Dodge Construction Network
Dodge Construction Network leverages an unmatched offering of data, analytics, and industry-spanning relationships to generate the most powerful source of information, knowledge, insights, and connections in the commercial construction industry.

The company powers four longstanding and trusted industry solutions—Dodge Data & Analytics, The Blue Book Network, Sweets, and IMS—to connect the dots across the entire commercial construction ecosystem.

Together, these solutions provide clear and actionable opportunities for both small teams and enterprise firms. Purpose-built to streamline the complicated, Dodge Construction Network ensures that construction professionals have the information they need to build successful businesses and thriving communities. With over a century of industry experience, Dodge Construction Network is the catalyst for modern commercial construction.

Media Contact:
Cailey Henderson | 104 West Partners | cailey.henderson@104west.com

The post Construction Industry Navigates Challenges as April 2023 PPI Shows Slight Increase appeared first on Dodge Construction Network.

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Higher employment in residential and nonresidential sectors leads to rebound

The Bureau of Labor Statistics reported that hiring in the US unexpectedly picked up last month, with employers adding 253,000 (seasonally adjusted) jobs, up from a revised 165,000 in March. The nation’s unemployment rate edged down to 3.4% in April, from 3.5% a month earlier and 3.6% in February, representing the lowest jobless rate since January.

The construction industry added 15,000 (seasonally adjusted) jobs last month, rebounding from a loss of 11,000 jobs in March. Employment in both residential and nonresidential sectors rose by 14,200 and 800, respectively. Meanwhile,  the construction unemployment rate declined from 5.6% in March to a still robust 4.1%, highlighting the persistent labor shortages in the industry.

Despite the increase in jobs, the outlook for construction employment remains uncertain. Tighter monetary policy and the recent banking turmoil have added to the downside risks for the industry. The latest (April) Federal Reserve’s Senior Loan Officer Opinion survey noted an increase in the number of banks that were tightening their lending standards in the first quarter of 2023. The survey also mentioned a weaker demand for credit and that respondents expect these trends will continue over the remainder of 2023.

Tighter lending standards do not bode well for the construction sector in the short term. With the planning queue on a generally downward slope since the beginning of the year , the potential effect on Construction Starts will add to the risks facing construction employment in the short term.

The post Employment in Construction Sector Rebounds in April appeared first on Dodge Construction Network.

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Weak office, hotel, and retail planning activity pull Index lower

HAMILTON, N.J. – May 5, 2023 — The Dodge Momentum Index (DMI), issued by Dodge Construction Network, fell 5.1% in April to 180.9 (2000=100) from the revised March reading of 190.6. In April, the commercial component of the DMI fell 8.0%, and the institutional component improved 0.3%.

“On par with our expectations, the Dodge Momentum Index continued to recede in April, due to declining economic conditions and ongoing banking uncertainty.” stated Sarah Martin, associate director of forecasting for Dodge Construction Network. “Weaker commercial planning is driving the DMI’s decline, as it is more exposed to real-time economic changes than the largely publicly funded institutional segment.”

Commercial planning in April was pushed down by sluggish office, hotel and retail activity. Institutional planning remained flat, as weak education planning offset growth in healthcare and amusement projects. Year over year, the DMI remains 11% higher than in April 2022. The commercial and institutional components were up 7% and 17% respectively.

A total of 16 projects with a value of $100 million or more entered planning in April. The largest commercial projects included a $268 million warehouse in El Dorado Hills, California, and a $170 million hotel in New York City, New York. Leading the way on the institutional side were the $450 million Desert Diamond Casino in Glendale, Arizona and the $350 million Global Energy Park research and development laboratory in Golden, Colorado.

The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year.

Watch Associate Director of Forecasting Sarah Martin discuss April’s DMI here.

About Dodge Construction Network
Dodge Construction Network leverages an unmatched offering of data, analytics, and industry-spanning relationships to generate the most powerful source of information, knowledge, insights, and connections in the commercial construction industry.

The company powers four longstanding and trusted industry solutions—Dodge Data & Analytics, The Blue Book Network, Sweets, and IMS—to connect the dots across the entire commercial construction ecosystem.

Together, these solutions provide clear and actionable opportunities for both small teams and enterprise firms. Purpose-built to streamline the complicated, Dodge Construction Network ensures that construction professionals have the information they need to build successful businesses and thriving communities. With over a century of industry experience, Dodge Construction Network is the catalyst for modern commercial construction. To learn more, visit construction.com

Media Contact:
Cailey Henderson | 104 West Partners | cailey.henderson@104west.com

The post Dodge Momentum Index Declines In April After Pullback In Commercial Planning appeared first on Dodge Construction Network.

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JOLTS for March falls to lowest level in almost two years

U.S. job openings as recorded by the Bureau of Labor Statistics fell to 9.6 million in March, the lowest level since April of 2021. This marks the third consecutive month of decline and points to ongoing success in the cooling of the labor market. The construction sector faced similar declines with the number of openings in the industry falling from 404,000 in February to 341,000 in March.

Additionally, though hires increased 33,000 in the construction industry, layoffs and discharges more than offset this gain with an increase of 112,000. This data has been volatile of late, reflecting the ebb and flow of project starts and completions. This is likely to continue through the year as Dodge Construction Network construction starts ease due to the slowing economy. Regardless, lack of skilled labor will remain a significant pinch point for the sector and will serve to hold back industry growth in the years to come.

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The U.S. Economy Shows Modest Growth in Q1 2023 Amidst Ongoing Challenges

The U.S. economy grew by an annualized 1.1% in the first quarter of 2023, according to the latest GDP report from the Bureau of Economic Analysis. While this increase is modest compared to previous quarters, it’s a positive sign that the U.S. economy remains resilient in the face of higher inflation and a slowing labor market.  It was particularly reassuring to see the increase in consumer spending, which is a key driver of economic growth. This suggests that Americans continue to feel confident about the economy.

Although progress has been made on the inflation front with core inflation beginning to slow, there are concerns about the economy’s ability to sustain growth amidst ongoing challenges such as tighter lending standards, a slowing labor market, and supply chain disruptions. Additionally, the Federal Reserve’s cumulative rate hikes are beginning to take a toll on the economy, potentially leading to further strain. The Fed is expected to raise the Federal Funds Rate one final time in May before pausing, which could push the economy perilously close to recession.

Despite these challenges, the construction sector remains a key area of growth for the US economy. While there has been a decline in the pace of projects entering the Dodge Construction Network planning database over the last two months, we remain confident that, construction starts will be flat for the year with declining commercial and residential starts offset by growth in the infrastructure and manufacturing spaces.

#GDP #economy #US #COVID19 #recovery #inflation #construction #FederalReserve

The post The U.S. Economy Shows Modest Growth in Q1 2023 Amidst Ongoing Challenges appeared first on Dodge Construction Network.

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Findings from the latest Civil Quarterly show that contractors will increase their bids, be more selective on the projects and utilize technology to manage risk in 2023

HAMILTON, NJ – April 25, 2023 — The latest edition of The Civil Quarterly (TCQ) from Dodge Construction Network shows that despite ongoing labor issues, business conditions are still very strong for civil contractors, with 77% optimistic about the market continuing to be robust for the remainder of 2023, and 46% expecting to see their profit margins increase in the next six months.

However, the strong construction market can also exacerbate civil contractor’s ongoing challenges, such as skilled worker shortages and supply chain challenges. This edition of the TCQ offers new data that reveals how contractors are managing these challenges, including how they are attempting to use technology to improve safety.

The report, produced in partnership with Infotech and Hexagon, is based on a quarterly survey of civil contractors and engineers that examines the business conditions that they face and explores key trends in this sector. This quarter, the two unique topics are dealing with uncertainty and data-driven safety.

When asked to select their top challenges, civil contractors highlighted four issues in particular: shortage of skilled workers (selected by 72%), higher prices for products and materials (55%), shortages of products and materials (47%), and concerns about an economic recession (39%). Given the robust state of the market, it is not surprising that an economic recession trailed after the factors that have been increased to acute challenges in the last year, but a potential recession is still clearly on the minds of more than one out of three civil contractors.

The biggest strategy to manage two of these challenges – dealing with supply chain issues and the possibility of a recession – is by controlling the one area that is abundant: the large volume of civil projects currently in the market. The vast majority (83%) will raise prices in their bids on projects to cover the risks of supply chain issues, while most (63%) also intend to be more selective about the projects they choose to bid on to focus on profitability to help them weather the possibility of a recession.

However, raising prices or being more selective about projects are not considered top strategies for managing the ongoing concerns about the skilled worker shortages. Recruitment is instead the top approach. The findings suggest, though, that contractors struggle to know how to respond to this challenge, since no single option for managing it is selected by more than half.

The report also offers new data on other strategies for reducing risk and uncertainty on projects in general. Technology figures importantly in these strategies, with over 70% rating technologies that improve communication and data sharing across the project team as at least moderately useful to reduce risk and over 60% also finding at least moderate value in using technologies that improve data-gathering and analysis on projects. However, the share of contractors using these technologies currently on more than half of their projects (56% and 45%, respectively) is considerably lower than those who believe that they can help to address risk.

The study also examined another way that technology can be used to reduce risk: deploying data analysis to help improve safety on projects. The findings reveal that contractors are just beginning to tap the value of this approach. While 63% of contractors are analyzing data to improve safety, they are split nearly evenly between those who are creating insights to explain what has already happened and those who conduct analysis to help them avoid future hazards and risks. And there is over one third who do not use data analysis currently to help improve safety.

Those who use data analysis are clearly reaping its benefits: 74% report that they are able to better prepare workers to deal with jobsite hazards, 67% report lower recordable injury rates, 60% have increased their ability to reduce the number of hazardous conditions onsite and 57% report fewer near-misses due to the analysis they deploy.

Most of the contractors also expect the industry to use more sophisticated tools involving predictive analytics and artificial intelligence to improve safety in the next three years, although the level of use they expect in the industry far outstrips the use predicted by their own companies. Still, with 47% expecting a moderate to major impact on safety from deploying these tools, it is not surprising that this is the direction that they expect the industry to head in.

The Civil Quarterly provides a quarterly snapshot of the current business health of contractors operating in this dynamic environment and explores trends in the industry. The report is the result of a partnership with Founding partner Infotech^® and Platinum partner Hexagon. It is based on original research collected from civil contractors and engineers and is available for free download to inform stakeholders in the U.S. civil construction industry. Future editions will continue to address a wide range of related topics providing a comprehensive view of this complex and ever-changing segment of the construction economy. Click here to download a copy.

About Infotech®: Info Tech, Inc., DBA Infotech (Infotech) is a leading SaaS solutions provider for the infrastructure construction industry. Informed by DOT relationships and decades of experience, Infotech develops software solutions that bridge the gaps between owners, consultants, contractors, and other project stakeholders. Whether it be tools for construction administration and inspection or secure online bidding, all of Infotech’s solutions are built to increase transparency, productivity and the availability of data. Infotech is the developer of Appia^®, Bid Express^®, and Doc Express^®, as well as the official contractor for AASHTOWare Project. For more information, visit infotechinc.com.

About Hexagon: Hexagon is a global leader in digital reality solutions, combining sensor, software and autonomous technologies. We are putting data to work to boost efficiency, productivity, quality and safety across industrial, manufacturing, infrastructure, public sector, and mobility applications. Our technologies are shaping production and people related ecosystems to become increasingly connected and autonomous – ensuring a scalable, sustainable future.

Hexagon (Nasdaq Stockholm: HEXA B) has approximately 23,000 employees in 50 countries and net sales of approximately 4.3bn EUR. Learn more at hexagon.com and follow us @HexagonAB.

The post How Civil Contractors Are Managing the Biggest Challenges They Confront Today appeared first on Dodge Construction Network.

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Despite economic woes and bank failures, construction shows strength across Q1

HAMILTON, NJ —April 20, 2023 — Total construction starts increased 19% in March to a seasonally adjusted annual rate of $1.09 trillion, according to Dodge Construction Network. During the month, nonresidential starts rose 33%, nonbuilding starts increased 17%, and residential starts moved 5% higher.

In Q1 of 2023, total construction starts were 9% below that of 2022. Year-to-date, residential starts were down 29%, nonresidential and nonbuilding starts grew 6% and 12% respectively. For the 12 months ending March 2023, total construction starts were 11% higher than the 12 months ending March 2022. Nonresidential and nonbuilding starts were 33% and 21% higher, respectively, while residential starts lost 11%.

“Construction starts activity has yet to see the impact of tightening financial conditions in the wake of the failure of Silicon Valley and Signature Banks,” said Richard Branch, chief economist for Dodge Construction Network. “Several large manufacturing projects are breaking ground; pushing nonresidential buildings higher, while a nascent recovery in single family starts has been supporting residential growth. Construction starts began the year with gusto, but that is likely to erode as the year progresses, as seen by the declining trend in the Dodge Momentum Index, which tracks projects entering the earliest stages of planning.”

·       Nonbuilding construction starts gained 17% in March to a seasonally adjusted annual rate of $263 billion. Miscellaneous nonbuilding was the only category to post a month-over-month loss. Environmental public works rose 35%, utility/gas plants gained 16%, and highway and bridge starts were up 13%. Year-to-date across Q1, nonbuilding starts gained 12%. Miscellaneous nonbuilding starts were up 43%, environmental public works rose 22%, utility/gas plants moved 8% higher, while highway and bridge starts gained 1%.

For the 12 months ending March 2023, total nonbuilding starts were 21% higher than the 12 months ending March 2022. Utility/gas plant starts rose 32%, and highway bridge starts increased 16%. Environmental public works and miscellaneous nonbuilding starts were up 20% and 23%, respectively, on a 12-month rolling sum basis.

The largest nonbuilding projects to break ground in March were the $606 million I-35 Capital Express North Lanes in Austin, Texas, the $445 million Klamath River Renewal Project, in Oregon, which involves the removal of hydroelectric dams, and the $375 million 360 MW Atrisco Solar Farm in Rio Rancho, New Mexico.

●      Nonresidential building starts increased 33% in March to a seasonally adjusted annual rate of $492 billion. Manufacturing starts more than doubled over the month and once again were the driving force behind the gain as three very large projects got underway. Without these projects, total nonresidential starts would have only gained 3%. Commercial starts rose 28%, with retail as the only category to fall, while institutional starts improved 11% due to numerous healthcare projects getting underway. On a year-to-date basis through three months, total nonresidential starts were 6% higher than the first three months of 2022. Institutional starts gained 21%, manufacturing starts were 1% higher, while commercial starts were down 5%.

For the 12 months ending March 2023, total nonresidential building starts were 33% higher than the 12 months ending March 2022. Manufacturing starts were 122% higher, institutional starts improved 22%, and commercial starts gained 18%.

The largest nonresidential building projects to break ground in March were the $5.5 billion Hyundai EV plant in Ellabell, Georgia, the $3.0 billion Panasonic Energy North America Battery Manufacturing Plant, and the $780 million third phase of the BASF MDI chemical plant in Geismar, Louisiana.

●      Residential building starts increased 5% in March to a seasonally adjusted annual rate of $335 billion. Single family starts rose 4%, and multifamily starts increased 8%. On a year-to-date basis through three months, total residential starts were down 29%; single family starts were 37% lower, while multifamily starts were down 12%.

For the 12 months ending in March 2023, residential starts were 11% lower than the 12 months ending in March 2022. Single family starts were 23% lower, while multifamily starts were up 16% on a rolling 12-month basis.

The largest multifamily structures to break ground in March were a $400 million mixed-use project in Jamaica, New York, the $225 million Chestnut Commons Affordable Housing project in Cypress Hills, New York, and the $268 million Knox mixed-use development in Dallas, Texas.

Regionally, total construction starts in March rose in all five regions.
Watch Chief Economist Richard Branch discuss March Construction Starts.

The post Total Construction Jumps in March to Three Month High, Bolstered by Nonbuilding Strength appeared first on Dodge Construction Network.

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