Construction Industry Outlook: A New Year or More of the Same Old

Contractors are mixed on what they expect from 2024. They see opportunities in various sectors improving, but what have become the “usual” issues remain as concerns: labor shortages, financing challenges, supply chains. One recurring issue, technology, has taken on a new image: artificial intelligence. What will come of that is as yet unknown if not unimagined. In “A Construction Market in Transition: The 2024 Construction Hiring and Business Outlook,” the Associated General Contractors of America (AGC) and Sage summarized the findings of its 2024 survey to determine where contractors stood on these issues and more.

Where will business come from? Water and sewer construction netted the top “net positive reading” in the survey, edging out 2023’s leading segments, highway and bridge construction and transportation projects. A net positive reading means that the available dollar values of projects is expected to expand in that area. The area of the biggest increase in optimism from the previous year’s survey was for datacenter construction. The lowest expectations went to lodging, then retail construction, then, understandably given the work-from-home trend created by the COVID-19 pandemic, private office construction.

Labor is now historically an issue of concern. While more than two-thirds of the respondents expect to add to their headcount, and many substantially, most continue to report having a hard time filling craft positions. And the majority opinion is that the challenge will only become greater. Of note, with little availability of new skilled labor, firms have been trying to hire away their competitors’ workers. Our group, HBK Construction Solutions, is advising contractors to “hug” their best employees right now. As you are trying to acquire new talent, your competition is doing the same. You have to know the pay rates, benefits, and perks they are offering their key employees, and, more importantly, ensure that your package is competitive.

While supply-chain problems have eased, they remain an issue, but not so much as the cost of money. A substantial majority of contractors told the surveyors that interest rates or financing costs are one of their biggest concerns, slightly more than an insufficient supply of workers or subcontractors and the likelihood of a recession. While we expect rates to decline over the next eighteen months, proactive cash flow monitoring is critical to keeping interest costs under control while rates remain at current levels. Other issues garnered more than half of the respondents’ concerns: rising direct labor costs, worker quality, and materials costs.

As with any industry, and maybe more than most, the construction industry is impacted by the overall strength and trends within the U.S. economy. Will there be a recession in 2024? Or have we already witnessed a “soft landing”? (Visit the HBKS website for “Everything Went Right for the Economy in 2023, But Signs Still Point to a Recession in 2024,” by HBKS Wealth Advisors Chief Investment Officer Brian Sommers.) Despite the passing of a mammoth infrastructure bill, some contractors believe the U.S. Government could do more to spur opportunity. “If the Biden administration were to act on Congressionally mandated permitting reforms, many more infrastructure and construction projects would start this year, countering the small impact those investments have had to date,” noted the AGC survey report.

Attempting to predict whether or not a weakening economy and construction market are on the horizon is difficult to impossible right now. Preparing for a weakening market, however, is not. The management teams of construction companies should be actively planning for a weaker market in 2024 and, possibly, 2025. There are many proactive steps that can be taken by management to ensure that prudent financial decisions are being made, attention is being given to your cash flow cycle, and your human capital is strong and well cared for. Taking these steps will help you ensure that you are ready for whatever comes your way in 2024 and beyond.