By Marcum Construction Services
The Marcum Commercial Construction Index for the fourth quarter of 2023 reports that the construction industry retained momentum through the year’s final quarter, capping off a year of surprisingly strong performance.
The index is produced by Marcum’s National Construction Services group.
The construction industry’s surprisingly strong performance in 2023 is largely attributable to manufacturing-related investment. “Manufacturing-related construction continued to surge in the fourth quarter, with spending in the segment rising another 5.2%,” said Anirban Basu, Marcum’s chief construction economist and author of the report. “Due to the Inflation Reduction Act, the CHIPS Act, and the private-sector desire to restore capacity, spending in the category is up more than 186% over the past three years.”
Moderating input price escalation also served as a tailwind for the industry, especially in the latter parts of the year. “The tameness of commodities prices in 2023 was a welcome development for contractors, as input prices are still about 38% higher than at the start of the pandemic,” said Basu. “While global supply chain improvements are the biggest factor behind this moderation, sagging global demand has also helped.”
As a result of elevated construction activity, contractors continued to hire throughout the fourth quarter. “The construction industry added jobs for the tenth straight month in December,” said Basu. “Nonresidential hiring outpaced job growth on the residential side, as increased infrastructure outlays and manufacturing megaprojects bolstered demand for workers in the nonresidential building and heavy and civil engineering categories.
That hiring would have occurred at a faster pace if not for the ongoing labor shortages facing the industry. “The industry averaged 445,000 job openings per month from October to December of 2023,” said Basu. “That’s the highest quarterly level on record.”
Despite a strong quarter for the broader construction industry, the commercial segment struggled due to declining demand for warehouse space. “Commercial construction spending fell more than 2% during the fourth quarter of 2023 and increased just 1% over the entirety of the year,” said Basu. “That’s in nominal terms, so after accounting for inflation, investment in the segment actually declined in 2023.”
Over the next several quarters, all eyes turn to the Federal Reserve and the possibility of lower interest rates. “Heading into 2023, the most important question was ‘how high will the Fed raise rates, and how long will they keep them there?’” said Basu. “Entering 2024, the question is now ‘when will the Fed start cutting rates, and how fast will they fall?’”
Marcum’s national construction leader, Joseph Natarelli, said, “While we’ve witnessed significant growth driven by legislation and a resurgence in domestic production capacity, the commercial segment’s dip demonstrates the selective pressures at play. As we navigate a landscape filled with opportunities and headwinds, vigilance and adaptability are critical to the industry, especially considering the questions surrounding the Federal Reserve’s next moves. Keeping tabs on these economic levers will be essential in keeping the momentum going and steering through any volatility ahead.”