The construction industry faces economical shifts and supply chain issues entering 2023 with threats of a recession on the horizon, according to recent research. RSM’s Construction Industry Outlook: Winter 2023, released in December 2022, examined some of the market’s data to offer insight from industry experts.
ELECTRICAL CONTRACTOR magazine’s “Falling into Place: 2023 Construction Outlook” had similar findings of slow growth, supply chain struggles and skilled labor shortages.
In late November 2022, the national 30-year fixed mortgage rates stood at 6.27%, with 15-year fixed at 5.55%.
“We expect interest rates to decline in the second half of 2023 and even lower in 2024,” said Robert Dietz, chief economist and senior vice president for economics and housing policy for the National Association of Home Builders.
He predicted a decline for multifamily housing due to a rise in unemployment and a slowed economy, which will drive rentals.
“That will leave a lot of inventory in the system, combined with a weakening housing demand in 2023,” Dietz said.
The RSM report predicts residential will face affordability issues in 2023, with interest rates around 6%, but Nick Grandy, RSM US construction and real estate senior analyst, remains optimistic.
“The demographics over the long term still look positive. A lot of millennials like myself are still renting and would like to be able to buy a home, but there just isn’t enough inventory to do so, and on top of that we’ve had affordability issues,” Grandy said.
A national shortage of skilled laborers faces the nation, and the Associated General Contractors of America found that construction employment grew in 38 states from October to November 2022, but 36,000 positions remained unfilled.
To meet their needs, companies will have to pay. The hourly construction wage grew by 5.8% last year, according to the Bureau of Labor Statistics, with experts anticipating that even more money will be invested to incentivize workers.
“We haven't seen annual raises above like 3% over the past decade,” Grandy said. He believes wages will continue to increase, although not at the pace they did last year.
Laborers will have the power to change jobs or even relocate for higher hourly rates. Grandy said it will be important for companies to communicate additional benefits, such as employee stock ownership plans that can add overall value over time, because offerings that aren’t upfront cash can often be overlooked.
“You might be getting other benefits that you don’t see on a regular basis and that 25-cent increase to switch contractors might actually be a decline in total compensation when evaluated fully,” he said.
Supply and worker shortages will continue, as well. To manage these challenges, RSM encourages construction companies to invest in technological advancement and efficient regulations over building. Cristian deRitis, deputy chief economist for Moody’s Analytics, believes the industry has learned from past hardships and will prevail.
“The construction industry today is much more disciplined. Perhaps the experience of having gone through the Great Recession has educated it in terms of risks. During COVID, the industry did not stop building. I think we will effectively navigate this period,” he said.