A downturn in the economy, perhaps large enough to be called a recession, is almost certainly in the offing between now and the summer of 2024, says a top construction economist.
Participating in a webinar sponsored by the Washington-based publication Construction Executive, Anirban Basu said that even though the national economy is “humming along and is much stronger than I would have expected at this point,” a downward trend is indicated.
“It’s going to get worse before it gets better,” said Basu, the chief economist for the American Builders and Contractors.
Basu noted that even though total non-residential construction spending rose by just under 20% between February of 2020 and May of this year, some sectors have continued to lag. He pointed in particular to hospitality construction, noting that contractors “built a ton of hotel rooms in the five years preceding the pandemic, and business travel has just not come back aggressively.”
The economist also noted the price of one-year Treasury bonds with historically high interest rates, remarking that in order to really jumpstart the economy the Federal Reserve should begin to reduce rates, “but I don’t expect that to happen until some point.”
Basu said he was also concerned about inventory cycle problems causing major retailers to report lower earnings as signs of an economy headed for trouble.
A poll of industry executives surveyed for purposes of the webinar indicated that supply chain problems have greatly decreased in the last year, with 43% in the spring of 2022 pointing to such matters as a leading challenge and only 19% saying the same thing today.
Meanwhile, the problem of finding skilled workers persists: in March of 2022, 52% of respondents pointed to a lack of skilled workers as the leading challenge to their companies. Today that number has increased to 58%.
Smaller challenges were noted in the areas of an “insufficient demand for construction services,” and the availability of project financing.
The survey additionally noted that new nonresidential building construction since the early summer of 2022 was up by a strong nearly 13% in the South, followed by 12.2% in the Northeast, 11.4% in the West, and 8.5% in the Midwest.
Factoring in all of the challenges and opportunities, a question asking construction executives to rate how their project backlogs have fared in early 2023 indicated mostly good news, with 42% saying they have seen either a considerable or slight rise; and 27% reporting either a slight or considerable decline.
Just under a third reported that their backlogs “remained about the same.”
The most dramatic project spending increases by sector since the month before the Covid 19 outbreak were seen in manufacturing, up by 148%, sewerage and waste disposal, with a 42% jump, and water supply work up by 36%.
In a survey presented to the Construction Executive in late 2020, when the construction industry was still adjusting to changes wrought by the pandemic, it was noted that manufacturing was only slightly up by 6.5%, with sewerage and waste disposal work seeing a 4.1% improvement, and water supply projects up by 7.3%.
Despite the spring 2023 trend lines, Basu said, “I think the national economy is weakening. We’re seeing that in terms of job growth, retail spending, and inventory cycle.”
Only seven sectors this spring have seen a decline, with lodging off the most by just under 31%, public safety projects down by 29%, and religious institution work off by 19%.
By Garry Boulard
