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Between the pandemic, supply chain challenges, and the passage of a long-awaited federal infrastructure bill, the past few years have been a roller coaster ride for the construction industry. While 2022 started off strong, there was a 33% year over year decline in the total contract value. That’s according to data Trimble gathered from more than a thousand construction ERP customers, primarily in the U.S.
“All of our data is aggregated and anonymized, so we avoid giving any insights or specifics to customers’ data,” says Anne Hunt, director of data and analytics at Trimble Viewpoint, who presented the findings in a recent webinar. “This data represents over 33% of the U.S. non-residential construction market, and it shows some really interesting insights and trends.”
Recently, Viewpoint's director of data and analytics, Anne Hunt, hosted a webinar taking a look back at a few key themes that contractors can learn. Watch the entire webinar here, and scroll for a breakdown of some of how 2022's trends are impacting 2023 forecasts.
2022 Trends in Construction: Interest Rate Hikes and Economic Uncertainty Drive Decline
Q1 and Q2 of 2022 started off strong, with a healthy surplus of new projects in the pipeline. Specialty contractors saw a 70% increase in new projects compared to Q4 of 2021, while general contractors saw a 14% increase and heavy highways and civil contractors saw a 10% increase during the same period.
“Projects were up initially, but that shifted by the end of the year,” says Hunt.
While the story varies based on vertical and location, the overarching trend in 2022 was a sharp drop in total dollars spent on new construction contracts in Q4.
The decline corresponds to multiple hikes in interest rates, continued high cost of materials, and general economic uncertainty. Comparing 2022’s Q3 and Q4 with the same period in 2021, there was significant year over year decline across verticals, with the heavy highway category (roads and bridges) seeing the biggest dip. Project backlogs also declined across verticals during the second half of 2022.
Construction Labor Trends: Encouraging Growth
While the construction labor shortage is still top of mind for many contractors, the data reveals an encouraging trend: a 1% year over year increase in the number of people hired vs. the number of people terminated (including both voluntary and involuntary termination). 2022 began with strong growth, but hiring slowed at the end of the summer. Still, the vertical-specific increases are positive: specialty subcontractors saw a 3% increase in their labor force, while general contractors were up 0.5% and heavy highway 1%.
Regionally, the data reveals a geographical shift in the construction labor force. “You’ve seen on the news that a lot of people have moved from California into Texas, and we’re seeing that reflected in the construction market,” Hunt says. “There’s an increasing number of construction workers in Texas, Florida, and the Midwest. As more people flock to warmer states and friendlier tax environments, those construction trends will follow.”
Industry Insights: Construction Forecast 2023
Based on the 2022 data combined with industry insights from the American Institute of Architects (AIA), Dodge Construction Network, construction analytics professional Ed Zarenski, and others, what should you expect in 2023?
Short answer: modest growth in many categories, with nonresidential verticals faring the best.
The aggregated construction forecast predicts 6% growth in the nonresidential category in 2023 (compared with 9.1% in 2022), while industrial is expected to be up 9.9% (compared with 31% in 2022). “Some of the areas that are really growing are nonresidential—manufacturing, transportation, lodging, and highway infrastructure,” says Hunt. “Verticals such as single family residential, home improvement, power infrastructure, and offices are expected to be down and will be more challenging.”
Material Prices and Lead Time Forecast
Supply chain problems and fluctuating materials costs have been common over the past few years. What changes can you expect in 2023?
Plumbing, wood-based building materials, roofing, and architectural interiors are all projected to maintain stable prices with diminishing lead times over the next 6–12 months. However, HVAC and electrical are expected to rise 15% over the next year, with lead times predicted to increase from already significant current numbers.