Even amid ongoing materials price increases, supply chain issues and labor shortages, the construction industry has managed to recover strongly following the economic fallout surrounding the COVID-19 pandemic. Depending on the specific sector, experts have mixed expectations for the rest of 2022 and into 2023. Due to increasing interest rates, the strong growth registered by the residential sector in 2021 is currently experiencing a slowdown, and this will likely continue in the near future. Meanwhile, the nonresidential and nonbuilding sectors are experiencing recovery in 2022 due to strong backlogs and funding from the Infrastructure Investment and Jobs Act (“IIJA”). However, analysts caution that inflationary pressures and a possible recession could constrain growth in all three sectors as 2022 progresses.
Recent Industry Performance
While the industry was threatened by multiple waves of COVID-19 infections, labor shortages and higher material prices in 2021, total construction starts reached a value of $901.0 billion during the year. This was an increase of 12.0% from $800.9 billion in 2020, according to Dodge Data & Analytics (“Dodge Data”).
During the first six months of 2022 (latest available), total construction starts reached a value of $484.8 billion, up 5.0% from $461.8 billion during the same period in 2021. For the 12 months ending June 2022, total construction starts were 7.0% higher when compared to the 12 months ending June 2021. However, June 2022 saw construction starts fall by 5.0% month-over-month after recording the following pattern during the first five months of the year: January, up 4.0%; February, up 9.0%; March, down 12.0%; April, up 3.0%; and May, up 4.0%. According to Richard Branch, chief economist for Dodge Construction Network, “Construction markets are getting jittery as the odds of recession increase. While projects are still moving through the planning process, the velocity has downshifted reflecting uncertainties over how rising interest rates will impact the economy, construction material prices, and ultimately, construction starts.”
Branch projects that the probability of a recession within the next year is 35.0%, which he calls “uncomfortably high.” However, he also anticipates that, if a recession occurs, it will likely be similar to the one in 2001, which lasted less than one year. In addition, Dodge Data reports the U.S. construction backlog is currently strong, which leads Branch to believe that construction starts will grow throughout the rest of 2022, albeit while facing some volatility.
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