Construction Outlook 2024 - Stabilization and Pockets of Growth

Will 2024 be a good year for the construction industry? Sometimes it’s hard to tell when you’re reading the industry trade press. While there are challenges facing certain parts of the market, 2024 is also expected to be a year in which the industry will benefit greatly from the inflow of federal dollars. Here are some of the key trends being discussed in the news:

1. You can expect positive growth in certain sectors of the non-residential market. Three key pieces of legislation signed in 2021 and 2022 will help drive an increase in non-residential construction spending this year. With money flowing from the Infrastructure Investment & Jobs Act (IIJA), the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors Act (CHIPS), expect to see a boost in transportation infrastructure, clean energy infrastructure and manufacturing. Most analysts anticipate a big bump in data center construction.
2. Positive signs in the residential market are tied to declining interest rates. More sensitive to economic cycles, the housing market has had some challenges in recent years. More than anything else, continued high interest rates and mortgage rates have reduced demand and restrained the overall activity levels of this segment. The Federal Reserve has indicated that we should see additional interest rate cuts this year. The falling rates would help with affordability challenges and potentially drive first-time homebuyers back into the market.
3. Labor will continue to be a challenge. Labor shortages are not new to the construction sector. Analysts believe this will continue to be a problem. Skilled workers are retiring, and firms are having a hard time finding younger workers to replace them. Because of labor demands, most also believe that construction wages will increase this year, putting pressure on construction firms.
4. Construction material prices are improving, but there is still a drag on builders’ profitability. The price of many building materials, like lumber, iron and steel, have declined from their post-pandemic heights, but prices overall continue to be elevated. Construction equipment prices are also increasing. Post-pandemic supply-chain issues were everywhere. Now, supply chain is most cited as a challenge for electrical goods. This is putting pressure on some of the tech-driven projects, like data center construction.
5. Interest rates and tightening lending standards continue to drag financing. While interest rates have declined, the elevated rates will continue to put pressure on projects that need to be financed. In addition to single-family construction, expect the higher interest rates to restrict some of the more developer-financed categories like office, retail, warehouse and multi-family construction.