Expect a mixed year for businesses across the construction industry, according to a January 2023 joint report from the Associated General Contractors of America and Sage, “High Hopes For Public Funding Amid Workforce And Supply Chain Challenges: 2023 Construction Hiring & Business Outlook.”

“Contractors are less optimistic about many private-sector segments than they were a year ago, while their expectations for the public sector market have remained relatively bullish,” according to the report.

Higher interest rates, remote work and eCommerce shopping patterns are affecting the demand for office, retail, hospitality and multifamily residential construction projects, while the possibility of an economic downturn has dampened the short-term demand for warehouses, data centers and manufacturing plants, according to the results of a survey of more than 1,000 contractors.

However, contractors are expecting to see increased work in the public sector due to the federal Bipartisan Infrastructure Law, the CHIPS and Science Act and the Inflation Reduction Act, as well as more projects for state and local governmental entities.

Across the industry, contractors say they continue to be faced with supply chain problems that have inflated the cost of many construction materials and delayed deliveries of those products. Then there’s the perennial challenge of continual workforce shortages, according to the survey results, with 80% of respondents reporting they are having trouble filling salaried and hourly craft positions.

To mitigate these challenges, contractors report they are boosting pay and benefits to entice more workers and retain current staff. 

Nearly three-quarters (72%) of the contractors responding to the survey increased base pay rates last year and one-third (33%) of firms provided incentives or bonuses. More than one-fourth (26%) of the firms increased their portion of benefit contributions or improved employee benefits.

Contractors in the South were somewhat more likely than those in other regions to have used steeper pay increases to attract and retain workers. More than three-fourths (76%) of firms based in the South increased base pay rates in 2022 more than in 2021, compared to 73% in the West, 72% in the Midwest and 65% in the Northeast. Nationwide, average hourly earnings for construction workers climbed 6.1%.

Contractors are also investing in technology and techniques to make their operations more efficient and less vulnerable to supply chain challenges and labor shortages.