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.

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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.

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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.

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