Markets

VIDEO: 2022 Mid-Year Construction Economic Update and Forecast

Anirban Basu presented his mid-year economic forecast, predicting a healthy 2022 but risks for 2023.
July 29, 2022
Topics
Markets

Construction Executive presented its "2022 Mid-Year Construction Economic Update and Forecast" webinar with Associated Builders and Contractors' Chief Economist Anirban Basu on July 27.

Basu started by discussing breaking news—the Federal Reserve raising interest rates by .75% for the second time this year in an effort to combat inflation, which remained one of the main topics of the day. With overall inflation at 9.1% and core inflation at 5.9%, Basu suggested that inflation may have peaked while acknowledging that may be overly optimistic.

As ABC has reported, the cost of construction materials has increased beyond the rate of inflation, at 20.1% since last June, which Basu suggested may start to slow the industry as funds from pandemic-era cash injections dry up. June data shows natural-gas prices are up 224.5%, iron and steel showing a 16.3% year over year, concrete a 13.5% increase and softwood lumber prices tumbling 38.1% lower than in June of 2021.

Moving to labor, Basu said that construction has added 46,000 jobs since February 2020, but more than 400,000 opening remain, the majority of them for skilled workers. Basu hinted that while construction has had a ready supply of unskilled labor, as wages rise in other industries, construction may soon have more competition for those jobs. Basu concluded that many contractors are operating at capacity and extending their backlog even with fairly stagnant growth for nonresidential put-in-place construction due to the systemic lack of workers and market consolidation.

Basu said that the Architecture Billing Index is showing steady growth in multi-family, which he suggested is largely due to the economic conditions forcing many Millennials out of the homebuying market, but an economic downturn could change that. Institutional spending is rising and expected to increase, even in the face of a potential recession, both due to the American Rescue Act and the $1.2-trillion infrastructure package passed last year. Basu contrasted nonresidential construction spending by subsector from February 2015 to February 2020 with February 2020 to May 2022, to show that manufacturing has seen a 21.6% increase since the pandemic, coming off a five-year decline as companies move to reshore their supply chain. Meanwhile, demand for lodging and office space has dropped off since the pandemic. Showing the U.S. GDP for nonresidential fixed investments in structures through the first quarter of 2022, Basu explained that there have been no signs of recovery, while design work has continued to grow—many projects that have been designed have not moved forward.

Basu warned that the world could see a recession within the next year, noting that “many economists would put the risk of recession in the next 12 months at less than 50%," adding that he did not agree with that assessment. He also predicted that the remainder of 2022 will be a time of growth with healthy backlogs and stable profit margins, but “watch out for 2023.” He discussed the risk of recession based on the Federal Reserve’s attempt at a “soft landing” from high inflation, noting that of eight previous rate-raising cycles since the 1980s, six have ended in recession. Basu also predicted that the supply chain will remain unbalanced but may start to improve in 2023. Dispute rising wages, Basu surmised that inflation will decrease by the end of the year and the stagnation—stagnation plus inflation—that defined the first half of the year will remain for a while.

During a Q&A period following his presentation, Basu said that while the global economy is slowing, the United States may fare better than the rest of the world, and that he expects materials prices to come down, with the exception of materials widely used in infrastructure, such as concrete. He predicted a more mild recession, postulating that it will be “not as severe” as the recession in the early 1980s. “In nominal terms, the economy is still growing,...the value of those transactions are still going up," Basu said. "It’s once you adjust for inflation that the growth turns negative.”

The webinar included live polls from the audience, with questions on profit margins, the status backlogs and the leading challenges firms face. The result from these polls are below, compared with polls from previous forecast webinars.

Related stories

Markets
Ethically Blending Design Concepts During the Multifamily Boom
By Blima Ehrentreu
With multifamily becoming the predominantly accessible housing source, developers are navigating the ethics of incorporating fashion, function, technology and sustainability into the designs of these projects.
Markets
Closeout: The Water Is Wide
By
A new fixed-span bridge replaces two old bridges—one fixed-span, the other swing-span—connecting Harkins Island, North Carolina, to the mainland.
Markets
Liftin' on a Prayer: Jon Bon Jovi's New Nashville Bar
By David McMillin
For DPR Construction, building Jon Bon Jovi’s new five-story bar in downtown Nashville meant working around 16,000 daily pedestrians, a packed entertainment schedule and a very tight footprint.

Follow us




Subscribe to Our Newsletter

Stay in the know with the latest industry news, technology and our weekly features. Get early access to any CE events and webinars.