WHAT WE LEARNED IN NOVEMBER: CONSTRUCTION INDUSTRY POWERS TOWARD AN UNCERTAIN 2025
The construction industry exhibited healthy growth over the past few months. Contractors continue to hire, labor availability is improving and materials prices have fallen over the past year. While private sector construction spending has been stagnant over the past few months, ongoing infrastructure projects have bolstered overall activity within the segment.
NONRESIDENTIAL CONSTRUCTION SPENDING INCREASES ON STRENGTH OF PUBLIC SECTOR
Nonresidential construction spending inched 0.1% higher in September, but that was entirely due to the ongoing infrastructure spending. Private sector nonresidential spending fell 0.1% for the month and is up just 3.5% over the past year. Despite broader private sector weakness, spending on manufacturing projects remains extraordinarily elevated.
INDUSTRY EMPLOYMENT GROWS DESPITE HURRICANES
Construction industry employment increased by 8,000 jobs in October, a number that would have been larger were it not for the effects of Hurricanes Helene and Milton. Contractors have expanded their staffing levels in each of the past five months, and the industry has added jobs at twice the rate of the broader economy over the past year. With labor shortages easing somewhat across all industries, contractors should have an easier time finding workers in the coming months.
BACKLOG SLIPS, CONTRACTORS STILL CONFIDENT
ABC’s Construction Backlog Indicator fell to 8.4 months in October, down slightly from the previous month but unchanged from the same time one year ago. Despite the dip in backlog, contractors on net still expect their sales, profit margins and staffing levels to expand over the next six months.
MATERIALS PRICES DOWN OVER PAST YEAR
Construction input prices increased in October, but that was largely due to higher energy costs. Despite the monthly rise, input prices have fallen slightly over the past year (-0.2%) and are down 5% since reaching an all-time high in June 2022. The next administration’s trade policy increases uncertainty heading into 2025, and it is unclear if materials prices will remain so well-behaved.
LOOKING AHEAD
While the construction industry carries significant momentum toward the end of the year, the outlook is not without uncertainty. Strong economic growth and a slight reacceleration of inflation have lowered the odds of another rate cut at the Federal Reserve’s December meeting, and questions regarding the next administration’s trade policies suggest there may be fewer rate cuts in 2025 than previously anticipated.
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