CE just wrapped its final Economic Update and Forecast for the year, which revealed some interesting 2023 insights and 2024 projections.

Host Anirban Basu, chief economist for ABC and founder of Sage Policy, began the webinar by stating auspiciously, “The economy has been much stronger along more dimensions than I expected.”

Polling

Not only did his research reveal strong construction growth in a majority of sectors, a decent number of construction job openings and wage increases, as well as supply-chain improvement and a stagnating federal rate, but viewers felt similarly.

“This is newsworthy!” Anirban exclaimed on more than one occasion. “The market is pivoting before our eyes,” he noted, referencing polling performance compared to last quarter.

In September’s economic forecast and update, supply-chain issues led the pack of burdens on construction companies. This time, project financing seemed to take the misery cake, while pollsters voted that supply-chain issues actually improved.

This revelation is also reflected by ABC’s declining Construction Backlog Indicator. Anirban says, “If you’ve been watching your backlog decline, please know you are not alone.” This phenomenon comes on the heels of the stagnating federal reserve interest rates; while they are no longer increasing, it might be a while before they begin to fall.

The Fed

On the afternoon of Dec. 13, Jerome Powell announced that the federal reserve rate would remain between 5.25% and 5.55%. How will this affect future project financing? It will give previously higher inflation rates time to catch up to the physical effects felts by the market. But this might be a small price to pay in order to level out supply and demand and stave off recession.

Shining Sectors

Despite a declining backlog, a stagnant reserve rate and a looming recession, there were several sectors than shone through 2023. Residential building took the cake, unsurprisingly, following a major housing shortage, with an 11.4% increase since Feb. 2020. This status includes a boom in multifamily housing as well. Manufacturing also stood strong among the several growing nonresidential sectors with a 164.2% increase—even office space building grew 3.8%.

The only sectors to decline in production were characteristically lodging, public safety and religious.

Jobs

Another area that experienced growth was the construction job sector. Anirban says, “More young are people getting the message and not taking out student debt, realizing there are various pathways to prosperity, many of which are through the skilled construction trades. But,” he cautions, “Gen Z is a small generation.”

The number of construction jobs has fallen recently but remains well above pre-pandemic levels at 427,000. With a smaller generation of workers now filling the boots of the retiring baby boomers, it is no surprise the labor shortage is ongoing.

Just as hard as it is to finance projects and find workers to fill jobs on those projects, that is not to say wages have not increased; in fact they have, by 4.9%. A seemingly positive outlook. However, because with new jobs filled and more wages paid, this creates more spending power and adds to the supply and demand problems prolonging the nation’s potential for recession, which Anirban is again predicting in the next 12 months.

Overall

Some burgeoning segments will stand to hold, but—although it didn’t happen in 2023—Anirban insists a recession is imminent in 2024. Interest rates are stalling, consumer spending power might be going up, but project financing power is going down, the national and global economy are weakening. Although a recession is bound to happen, Anirban anticipates it will be a small and a short one.

For more information on the 2024 construction economic update and forecast, watch the webinar recording here.