Economic Report: ‘Wait and See’ is the Theme of the 2024 Construction Industry Forecast
By Robb Kahl, Construction Business Group
Secretary of the Treasury Janet Yellen captured the spirit of economic forecasts when she said, “The outlook for the economy, as always, is highly uncertain.” Over the last year, material prices and availability leveled, minimizing bid price increases and project delays. But many of the ‘asks’ on last year’s economic wish list remain unfulfilled: an increase in owner confidence to invest in construction projects, lower interest rates to make project financing possible, and an ample supply of employees, willing and able to work building Wisconsin. ‘Wait and see’ is an appropriate theme for the 2024 construction industry outlook because economic news continues to inspire neither confidence nor dread.
The Fed continues to wage its tightrope balancing battle against inflation, while trying to avoid undue deterioration in the capital markets environment. This uncertainty is the engine behind an economy that is showing signs of deceleration, with several contributing factors, including high interest rates impacting consumer discretionary incomes that stresses business profitability.
In 2023, U.S. total construction starts through October rose only 7% (much lower than the increases we saw in 2022), with moderate increases in most segments of the nonresidential and public sectors, including transportation. Multi-family is the only segment of residential that has shown increases, with single-family down 6% and not likely to resume activity until interest rates improve. The Architectural Billing Index for October reflects a continued downward trend in architectural billings, forecasting a slowdown in the construction industry, and the Dodge Momentum Index is down almost 10% from Oct 2022.
Manufacturing held the spotlight for growth in 2023, attributed to a robust computer and electronic manufacturing market that includes data centers. Education, power, healthcare, and transportation are expected to finish the year with strong double-digit growth. As historical trends demonstrate, growth in the different construction segments can vary widely each year. Wisconsin’s 2023–2025 biennial budget and WisDOT’s Transportation Funding are strong and include substantial investments in both transportation and infrastructure.
Manufacturing projects are forecasted to remain at peak levels in 2024, as Buy America requirements force owners to invest in U.S. facilities, and U.S. computer/electronics manufacturing. For example, data centers, are in strong demand. Transportation, highway and street, sewage and waste disposal, and water supply are forecasted to deliver double-digit increases in 2024 due to increased federal spending. The Infrastructure Investment and Jobs Act (IIJA), Chips+ Act, and Inflation Reduction Act of 2022 will continue to support investment in projects that increase energy efficiency and reduce carbon emissions.
Despite the ongoing concerns about a housing shortage, particularly for workforce housing, it is forecast that single-family housing will not recover until the stabilization of interest rates. This presents a major challenge in most parts of the state. In Dane County for example, it is projected that the population will increase by 100,000 over the next decade, and multi-family vacancies today are less than 2%. There is no end in sight for multi-family housing construction in Dane County. There are many units being built right now, both at affordable and high-end market rate, despite the rising interest rate environment. “Workforce housing,” rather than low-income housing, needs to be a focus.
The availability and cost of building materials in 2023 were less of a challenge than in recent years with most inputs, except for electrical gear and some electronics, leveling off. Contractors are not experiencing relief relative to labor availability. Wisconsin, like the rest of the midwestern states, has close to no population growth, leaving worker shortages once again the #1 challenge for construction. The ongoing shortage of workers will be challenging for a much longer period than material costs or supply.
Wisconsin’s construction industry contributes to the quality of life we enjoy and is an important stimulator for the economy. Every $1 spent within the construction industry, produces an economic impact of $1.84. Every $1 million spent within the construction industry generates twelve jobs on average (seven within construction and five in other sectors) and over $742,000 in wages. Construction Business Group looks forward to supporting the modest growth forecasted for 2024 and is prepared to work with our industry partners and elected officials, as we Build Wisconsin Together.
Kahl is the executive director of Construction Business Group | The Construction Business Group works to promote and protect the construction industry by ensuring fair contracting laws are followed on public construction projects. CBG works cooperatively with contractors, employees, and public entities by educating them on fair contracting laws; monitors projects for fair contracting compliance; and aids to resolve compliance issues.
