Prairie Industry Perspective – Construction Industry February 2023

The construction industry experienced plenty of positives in 2022, as seen by the growth in construction starts, particularly in the nonresidential and nonbuilding segments. Moreover, going into 2023, construction backlog is high, and some sectors that experienced major setbacks throughout 2020 and 2021 due to the COVID-19 pandemic— such as hotels and retail—look to be recovering. At the same time, however, labor shortages, elevated materials costs and supply chain snarls continue to challenge the industry. In addition, high inflation throughout 2022 caused the U.S. Federal Reserve (“Fed”) to raise interest rates several times, which is impacting the construction industry as a whole and is having an outsized impact on the residential construction market. Overall, the economic environment is leading some to fear a recession in 2023. As a result of these factors, the construction industry’s performance will likely be tempered moving forward. However, analysts indicate that the industry’s strong backlog should help support the construction market through the year.

Recent Industry Performance

During 2022, total U.S. construction starts increased 15.0% compared to 2021, reaching $1.1 trillion, according to Dodge Data & Analytics (“Dodge Data”). Nonresidential construction starts grew by 38.0% year-over year, and nonbuilding construction starts rose 19.0%, while residential construction starts fell by 3.0%. Richard Branch, chief economist for Dodge Construction Network—an umbrella brand which combines Dodge Data with the Blue Book Network—notes, “One of the key construction storylines for 2022 was the return of enthusiasm and optimism in prospects for nonresidential growth. While some of that will likely erode in 2023 as economic growth wanes, increased demand for some building types like data centers, labs, and healthcare buildings will provide a solid floor for the construction sector.”

Looking to 2023, Dodge Data projects that total construction starts will remain flat at $1.1 trillion. That said, Branch notes that one of the overarching concerns for the performance of the U.S. construction industry going into 2023 is the possibility of a recession due to the fact that inflation is at its highest level in 40 years. However, for a variety of reasons—including the Fed’s decision to aggressively raise interest rates throughout 2022 in an effort to combat high inflation— Dodge Data’s forecast assumes that the U.S. will narrowly avoid a recession. Still, Branch indicates that many construction sectors may “feel recessionary” in 2023.

Download the newsletter to read more.

Connect With
Prairie Capital Advisors

Subscribe to Our
Resources & Insights