CE just wrapped its "2024 Economic Update and Forecast" webinar, which revealed some interesting insights for 2023 and projections for next year. Anirban Basu, chief economist for ABC and CEO of Sage Policy Group, began his presentation by stating auspiciously: “The economy has been much stronger along more dimensions than I expected.”

POLLING: GOOD NEWS FOR THE SUPPLY CHAIN

Not only did Basu's own 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 webinar attendees who answered Basu's polling questions felt similarly

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

During CE's "Q3 2023 Economic Update and Forecast" in September, supply-chain issues led the pack of challenges webinar attendees said were facing their construction companies. This time, project financing seemed to take the misery cake, with attendees voting that supply-chain issues have actually improved. 

This revelation is also reflected in ABC’s declining Construction Backlog Indicator. “If you’ve been watching your backlog decline," Basu said, "please know you are not alone.”

THE FED: NO CHANGE IN RATES

This phenomenon comes on the heels of stagnating Federal Reserve interest rates; while they are no longer increasing, Basu said, it might be a while before they begin to fall. Indeed, on the very afternoon of the webinar, Dec. 13, Fed Chair Jerome Powell announced that rates 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, Basu noted, this might be a small price to pay in order to level out supply and demand and stave off recession.

HIGH-PERFORMING SECTORS: RESIDENTIAL AND MANUFACTURING

Despite a declining backlog, a stagnant reserve rate and the potential for recession, there were several construction sectors that shone through 2023. Residential building took the cake, unsurprisingly, following a major housing shortage, with an 11.4% increase since February 2020. The sector's performance includes a boom in multifamily housing as well.

Manufacturing also stood strong among several growing nonresidential sectors, with a 164.2% increase. Even office-space building grew, by 3.8%.

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

JOBS: FEWER OPENINGS, HIGHER WAGES

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," Basu said. "But, Gen Z is a small generation.”

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

As hard as it is to finance projects and find workers to fill jobs on those projects, it's not that wages haven't increased; in fact, they have—by 4.9%. This is a seemingly positive outlook. However, Basu cautioned, 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 Basu is stubbornly predicting sometime in the next 12 months.

RECESSION: YES, IT'S STILL HAPPENING

Some burgeoning segments will continue to deliver, but—although a recession didn’t happen in 2023—Basu insists that a recession is imminent in 2024. Interest rates are stalling, and while consumer spending power might be going up, project financing power is going down and the national and global economies are weakening. Still, while a recession is bound to happen, Basu anticipates that it will be small and short.

Watch the full recording of CE's "2024 Construction Economic Update and Forecast" above.