WHAT WE LEARNED IN SEPTEMBER: INDUSTRY RETAINS ADEQUATE MOMENTUM AS FEDERAL RESERVE BEGINS LOWERING RATES
The Federal Reserve reduced the target range of the Federal Funds Rate by 50 basis points at its September meeting. The rate cut comes 30 months after this cycle’s first rate increases and at a time when both inflation and the labor market have cooled considerably. While the construction industry retains adequate momentum heading into the last quarter of 2024, lower borrowing costs and looser lending standards represent a welcome development for contractors, especially given rising cost pressures and shrinking profit margins.
CONSTRUCTION SPENDING WAVERS
Nonresidential construction spending fell 0.2% in July and is up 5.9% over the past year. While Hurricane Beryl and the interruptions it caused in construction activity along the Gulf Coast in early July contributed to the monthly weakness, high interest rates likely deserve more blame. The private sector has appeared particularly weak in recent months as a result, with private nonresidential spending up 4.5% since July 2023.
CONTRACTORS KEEP HIRING
Construction industry employment increased by 34,000 in August, the largest monthly gain since January 2023. The majority of those positions—28,300—were in the nonresidential segment. Despite easing labor constraints economywide, the construction industry unemployment rate fell to 3.2% in August, matching the lowest level on record.
BACKLOG DIPS, CONTRACTOR CONFIDENCE INDEX DECLINES AGAIN
ABC’s Construction Backlog Indicator fell to 8.2 months in August and is now exactly 1.0 month lower than at the same time last year. While contractors remain relatively upbeat about their sales and staffing levels, the Construction Confidence Index reading for profit margins fell below 50, indicating that a plurality of contractors now expect their margins to contract over the next six months.
MATERIALS PRICES DOWN YEAR OVER YEAR
Construction materials prices increased just 0.1% in August and are now down 0.7% over the past year. While much of the annual decline is due to lower energy prices, certain metal products have also seen significant year-over-year price reductions. This recent moderation is a welcome development for contractors, especially considering that materials prices are still up nearly 40% since the start of the pandemic.
LOOKING AHEAD
Not only did the Federal Reserve begin reducing interest rates, but its September projections also suggest rates will fall faster than previously anticipated. That’s good news for contractors, especially those operating in private sector segments. At the same time, economic momentum is waning, and downside risks to the outlook remain firmly in place.
SEPTEMBER 2024 ECONOMIC OVERVIEW
Download the PDF version of September Construction Futures.
