By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE
Five key economic indicators together create a mixed forecast for contractors in 2023.
Architecture billings’ positive streak ends, construction backlog remains steady, material prices remain volatile, labor shortages continue, and construction input costs rise are the five key indicators to watch in 2023, construction economists say.
According to Associated Builders and Contractors Chief Economist Anirban Basu, architecture firms’ positive billing streak is likely to begin to turn downward in 2023. The Architecture Billing Index, produced by the American Institute of Architects, remained positive until October 2022 when it began decreasing dramatically. But Basu says a lag in when overall economic factors – such as inflation – hit the design-build industry means contractors might not feel the pain until another year or more.
“For many contractors, 2023 does not stand to be the problematic year,” Basu said. “It’s more likely to be in 2024 or 2025, if in fact the U.S. economy enters recession in 2023.”
Construction backlog in 2023 is projected to remain steady, according to Associated General Contractors Chief Economist Ken Simonson. While commercial and industrial construction backlogs posted their largest monthly decline in October 2022 since July of 2020, the influx of infrastructure project work in the new year will buoy overall backlog numbers.
“I expect a big pickup in 2023 in infrastructure investment as money from the Infrastructure Investment and Jobs Act starts to be awarded and contractors get to work on those projects,” Simonson said.
In the private sector, he adds that manufacturing construction – especially for semiconductor manufacturing plants and electric vehicle battery components and battery charging manufacturing plants break ground.
Construction economists agree that material prices, the third key indicator, will remain volatile in 2023. Simonson says that while lumber and plywood prices have ebbed, cement and diesel costs remain problematic for contractors due to continuing shortages. “The U.S. hasn’t added any cement production since 2009 even though demand is growing,” he said.
Labor shortages, the fourth key indicator, will continue throughout 2023. Federal infrastructure work, much of it that will be underway in 2023, promises to keep demand for construction workers high, job opening rates up and wages rising as well.
Construction input costs, the final economic indicator, will continue to rise in the new year. Inflation, high wages and other price increases cut into contractors’ bottom lines during 2022, driven in large part by materials, labor and other project expenses.
Simonson predicts some selective reductions in materials costs and supply chain bottlenecks but adds that recessionary fears are likely to slow the rate at which costs are passed on.