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Inflation is determining the path of the economy, says Richard Branch, chief economist for Dodge Construction Network (DCN) during the organization’s Annual Outlook Forecast Conference. However, Branch adds that core inflation is improving thanks to aggressive actions taken by the Federal Reserve.
According to a Job Openings and Labor Turnover Survey conducted by the U.S. Bureau of Labor Statistics, there were more than 422,000 job openings in September, which is up 21% from September 2021.
Branch says that the labor market remains relatively healthy and infrastructure spending is high despite lingering inflation. He does not expect construction companies to cut jobs substantially throughout the first half of 2023. Of course, job losses are to be expected, he says, and the unemployment rate will go up, but job creation in the first six months of next year will more than likely be zero.
“It’s this stability in the labor market in the first half of [2023] that will allow the economy to flip back into positive territory in the second quarter,” he says. “Therefore, avoiding a textbook ‘technical recession’ of two consecutive quarters of negative gross domestic product.”
Another problem facing the construction industry is the time it takes for projects to get through the planning process and into groundbreaking. According to DCN data, certain projects are taking longer to break ground, such as hotels and offices. These are taking about a year longer to break ground compared to last year. This is more than likely a result of demand, says Branch. Education and healthcare projects have sped up in 2022, however.
The main culprits are prices and people. When it comes to labor, there is a “significant shortage of skilled labor in the construction sector,” says Branch.
According to a Job Openings and Labor Turnover Survey conducted by the U.S. Bureau of Labor Statistics, there were more than 422,000 job openings in September, which is up 21% from September 2021. Branch says that he does not see a drastic improvement in attracting skilled labor to the industry when forecasting out five years,
“We’re making progress,” he says. “But I think over the next five years this issue will continue to put a ceiling on the amount of work that we can get done in the industry, baring technology changes and productivity enhancements.”
Regarding prices, Branch says that good news is on the horizon. Producer Price Index data shows that construction material inflation is easing. The takeaway here, says Branch, is that while pricing will remain challenging into the first half of 2023 expect improvements in the back half of next year.
As for the big picture, Branch states that construction growth will more than likely be stifled in 2023 due to economic weakness. However, a downturn in total construction starts will “be very, very mild compared to what we’ve seen in cycles past,” he says.
