Building for the Future — 2023 Construction Industry Forecast
Construction Business Group
By Robb Kahl, CBG Executive Director
Economic forecasts are a bit like New Year’s resolutions — hopeful optimism for future success in areas that one struggled with in the past. For the construction industry, the hope is that 2023 will bring an increase in owner confidence to invest in construction projects, lower interest rates to make project financing possible, leveling of material prices and availability to minimize bid price increases and material delays, and an ample supply of employees, willing and able to work building Wisconsin.
In 2022, U.S. total construction starts rose 11% (through September) with increases in all major sectors: private residential 13%, private nonresidential 11%, and public sector, including transportation, 7%. The Architectural Billing Index for September reflects that architectural billings are up slightly over 2021, a good sign of new projects to come, and the Dodge Momentum Index is up over 25% from October 2021. Manufacturing, water supply, and commercial construction saw the largest increases in 2022 with power, office, and transportation at levels lower than or equal to 2021. As historical trends demonstrate, growth in the different construction segments can vary widely each year. In 2023, federal funding is anticipated to spur growth in some markets that were down this past year.
Transportation, manufacturing, and energy projects are forecasted to be strong in 2023 due in part to three major investments made at the national level. The Infrastructure Investment and Jobs Act (IIJA) signed in November 2021 authorized an additional $550 billion above baseline infrastructure spending to fund the interconnected transportation network and supports expansion of broadband, bridge repair, and clean energy transmission and power upgrades. The Chips+ Act funds investment in domestic manufacturing of semiconductors. The Inflation Reduction Act of 2022 includes a major expansion of tax credits (and direct payments to municipalities, non-profits, and tribes) for investment in projects that increase energy efficiency and reduce carbon emissions.
Despite the ongoing concerns about a housing shortage, particularly for accessible housing, it is forecasted that both multi-family and single-family housing will fall for at least the first half of 2023 due to rising interest rates. The post-pandemic shift from retail to e-commerce and office work to employee preference for hybrid work leaves ongoing uncertainty in the retail and office sectors but leads to increased demand for e-commerce/distribution and decentralized office locations.
The availability and cost of building materials in 2022 was particularly challenging for contractors as they strived to keep bid price increases at a minimum. Between April 2020 and September 2022, steel increased 91%, plastic construction products 56%, and copper and brass mill shapes 54%. While these increases in construction inputs are remarkably high, the good news is that the prices have been rapidly falling since Q1 of 2022, giving optimism to contractors and owners alike. While material costs and supply chain challenges increased between April 2020 and April 2022, they are stabilizing; unlike the challenge of finding workers. Wisconsin, like the rest of the Midwestern states, has close to no population growth, making worker shortages once again the #1 challenge for construction, and every other industry.
Wisconsin’s construction industry contributes not only to the quality of life we enjoy but is an important stimulator for the economy. Every $1 spent within the construction industry produces an economic impact of $1.81. Every $1 million spent within the construction industry generates 12 jobs on average (7 within construction and 5 in other sectors) and over $690,000 in wages. We look to 2023 with optimism and are prepared to work with other industry leaders as we Build Wisconsin Together.
The Construction Business Group promotes and protects the construction industry. We ensure fair contracting laws are followed on public construction projects. We work cooperatively with contractors, employees and public entities by educating them on fair contracting laws, monitoring projects for fair contracting compliance, and identifying and helping to resolve compliance issues.
