The Marcum Commercial Construction Index for the first quarter of 2024 reports that the construction industry continued growing despite various challenges.
The index is produced by Marcum’s National Construction Services group.
The construction industry continues to benefit from massive investment in manufacturing structures. “Construction spending on manufacturing structures is up 184% over the past four years,” said Anirban Basu, Marcum's chief construction economist and report author. "Given the size of many of these projects and ongoing efforts to strengthen the nation's semiconductor, clean energy, and electric vehicle production capacity, the manufacturing-related construction segment will retain momentum through the entirety of 2024.”
Input prices, after remaining relatively flat throughout 2023, resumed rising during the first quarter. "Prices for inputs to construction increased sharply in March,” said Basu. “This is partly due to global supply chain issues, with new bottlenecks arising in the Red Sea, the Panama Canal, and the Port of Baltimore.”
In addition to rising input prices, the industry must grapple with higher-for-longer interest rates. "The year's first quarter has squashed any hopes of imminent interest rate cuts," said Basu. "Inflation has accelerated and now appears to be stickier than anticipated. Most forecasters now expect one rate cut at most in 2024, and not until the end of the year."
Despite higher interest rates and rising material costs, the industry continues to expand. “The construction industry added jobs for the thirteenth straight month in March,” said Basu. “Nonresidential construction has added jobs at a particularly rapid pace lately, with employment in the category up 5.5% over the past year. That compares favorably to both the broader construction industry (up 3.2% year over year) and all industries (up 1.8%).”
Unfortunately, rapid employment growth has come with rapid wage increases. “Average hourly earnings for construction workers are up 5.2% over the past year, well above the 3.9% increase observed across all industries,” said Basu. “Higher wages put upward pressure on construction costs, exacerbating the effects of high interest rates and tight lending standards.”
While the overall industry will likely retain momentum throughout 2024 due to strong manufacturing- and infrastructure-related construction activity, others may struggle. “As project financing becomes increasingly difficult to secure, certain segments, including those not boosted by infrastructure on manufacturing-related federal programs, will struggle,” said Basu.
Marcum’s national construction leader, Joseph Natarelli, said, "I continue to be encouraged at the resilience and momentum our industry has showcased, particularly in the manufacturing sector, where spending has surged dramatically. While we navigate through the challenges of rising input costs and persistently high interest rates, it is crucial for construction businesses to maintain a vigilant approach to cost control and financial planning. Securing project financing has become a competitive edge in this current climate. Companies should also invest in efficiency and innovation to mitigate the impact of increased wages and input prices. Our industry is robust and growing, but success will largely depend on strategic foresight and the agility to adapt to the economic landscape."
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