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The US Construction sector is performing reasonably well at this time, despite global turbulence. However, with inflation remaining high at + 7% and fuel/energy and household goods increasing, plus an impending recession a month or two away, the 1st Q of 2023 does not look good for the US construction sector.
Unfortunately, US oil reserves continue to fall, and the ongoing war continues in Ukraine.
Increasing borrowing/interest rates is a direct challenge to the US construction sector, especially the home building/housing sector.
It’s not all bad news; construction-related inflation is projected to decline to pre-COVID levels as energy/oil and consumer prices even out.
Construction of Fulfillment Centers, EV Battery Facilities, Computer Chip Manufacturing, Logistics/Warehouses, and Data Centers will continue to be an area of construction growth due to the continued need for at least the next 2 to 3 years.
US 2023 Construction inflation is forecast to range between 4.75% and 6.25%, an average of 5.50%.
In the USA, the construction unemployment rate is in the 5.7% and 6.9% range.
US Construction labor challenges continue, and there is a shortage of skilled construction workers such as electricians, welders, pipefitters, and millwrights. Baby boomers (individuals reaching 55 years) are retiring at record numbers, and school leavers/young workers are not entering the construction industry in the numbers needed to sustain a growing construction sector. These younger workers are attracted to other industries, such as IT. Other industry sectors look more attractive and less demanding to these individuals.
Many US high-tech/social media companies are downsizing. This could impact future construction activity.
The global real GDP growth forecast is trending lower. 2023 is expected to grow slowly by 2.4% to 2.8%. Extreme inflationary difficulties seem to have intimidated many Owner/Operating companies. Many of these companies have delayed future CAPEX capital investments for the next 6 to 12 months.
Inflation remains elevated in just about all countries. This could be a serious problem for the construction sector in 2023. Increased construction labor/material costs and shortages of key construction materials remain a problem. Construction materials supply chain issues cause price spikes, shortages, and delivery delays.
For the best part of 18 months, the global construction industry has faced the following challenges:
The vast majority of construction bulk materials, such as timber/plywood and OSB, steel products (rebar and structural steel), copper products, roofing, cement, concrete, plumbing, and electrical components have started to decline from their high prices experienced back in the 1st and 2nd Q of 2022, some of these bulk construction materials have declined by as much as 25%. Unfortunately, most construction bulk materials, and to some extent, construction-related equipment, such as HVAC components, pumps, and electrical devices, are still 5% to 15% or more expensive than 12 months ago.
The US Federal Reserve has started to vigorously increase interest rates to combat the + 8% inflation rate. This will impact the US home builders/commercial construction sector and cause a contraction of the US construction sector.
The civilian death count in Ukraine has exceeded 6,800 since the start of Russia’s invasion. The invasion of Ukraine has caused considerable damage, many ports, rail/bus stations, and airports have been closed or destroyed, and numerous private and public buildings, roads, and bridges have been destroyed.
Look for transportation/ocean and domestic freight costs to stabilize in the next 6 months.
1st Q of 2023 Construction Outlook for Major Countries:
| Countries | 1st Q 2023 % GDP Growth | 1st Q 2023 Inflation % | 1st Q 2023 Unemployment % | Comments on Construction in 1st Q of 2023
Future Spending Activity |
| USA | 1.7 – 2.2 | 7.4% to 8.4% | 3.8 | It appears the USA will face lower growth and higher inflation in the next 3 to 9 months and possibly longer.
Energy, oil, natural gas, and diesel costs have intensified substantially, this will result in a slow down and delay in the commencement of some CAPEX capital projects. The US housing construction market is a huge employer of construction-related professionals and workers. This sector is forecast to slow down significantly as the US Federal Reserve increases lending/mortgage rates to combat high inflation rates. |
| CANADA | 2.9 – 3.3 | 6.5 – 7.2 | 5.2 | Look for construction-related inflation increases in the next 3 to 6 months/escalation rates and construction material pricing spikes/shortages.
Ongoing higher oil prices will positively impact Canada’s Alberta oil patch. Increased energy costs are impeding some CAPEX capital construction projects from moving forward. Russia – Ukrainian hostilities and high energy prices will test the Canadian Economy and Construction industry. |
| BRAZIL | 2.4 – 3.2 | 5.8 – 7.1 | 8.6 | Brazil is experiencing political issues that could negate the recent general election.
Supply chain issues/interruptions continue causing delivery delays of critical materials to project locations. The ongoing skyrocketing inflation/escalation that impacts food, energy, and commodities prices is a huge challenge to the Brazilian economy and construction sector. Inflation/escalation inflation in Brazil is running over 6.8%, which of course, impacts construction costs. |
| UNITED KINGDOM | 3.0 – 3.3 | 9.9 – 11.2 | 3.7 | Inflation is close to 11% and could go higher if energy, oil/petroleum prices continue to increase.
The UK pound is at a record low against the US dollar on 9/26/2022 on growing worries on the subject of the stability of the UK economy. This could increase inflation, as oil and many imported items are priced in US dollars. The UK pound has fallen by 8.5% to 11%against the US dollar in the last 6 months. Energy, oil, natural gas, and diesel cost increases have curtailed and delayed the commencement of some capital projects in the UK in the last couple of months. BREXIT terms and conditions remain a continuing problem. |
| GERMANY | 0.9 – 1.3 | 9.9 – 10.1 | 3.2 | Germany is facing some serious challenges related to the importation of Russian gas. The German chemical industry is overly dependent on Russian gas supplies. The jury is still out on how this will culminate in the next 6 months
Increased energy costs and natural gas shortages from Russia are the # 1 issue facing the German economy and construction sector. The recent major damage/leaks and disruption of the Nord Stream gas pipeline are especially concerning to Germany’s industry and construction sector. Was this a pipeline defect or sabotage? |
| FRANCE | 0.9 – 1.3 | 5.9 – 6.3 | 7.0 – 7.3 | The ongoing Russia – Ukrainian confrontation has caused severe problems for the French Economy and Construction sector, with spiking inflation/escalation rates and construction material pricing increases/shortages.
Energy, oil, natural gas, and diesel cost increases have caused a slowdown and delayed the commencement of some CAPEX capital projects |
| RUSSIA | minus 0.3 – 1.4 | 11.9 – 12.6 | 4.1 | The Russia – Ukrainian war will negatively impact the Russian Construction sector and could cripple the industry, sanctions, closure of export markets, skyrocketing inflation/escalation rates and construction material pricing spikes/shortages will be in place for possibly many months.
A long-drawn-out Russian offensive in Ukraine has had severe economic consequences on Russia and its neighbors. The Russian Ruble is currently the world’s strongest-performing currency. The Russian Ruble has been resuscitated by enhanced crude oil exports to China and India. |
| JAPAN | 1.4 – 1.8 | 2.9 – 3.9 | 2.4 – 2.7 | Japan’s construction industry for the sixth year continues to experience sluggish or minimal growth in its civil/infrastructure, home building, commercial, institutional and industrial sectors, perhaps mirroring Japan’s steadily declining population. |
| CHINA | 3.2 – 3.6 | 2.2 – 2.4 | 5.5 – 5.8 | COVID has impacted China with mass lockdowns, strong contact tracing programs, and a ban on international travel. The Chinese government has recently announced it is rolling back its “zero-COVID” policy, however, it may be too late for many Chinese citizens. The latest projections are that China could see more than 1 million related COVID deaths in the coming months.
China is beset by some stark economic and construction-related challenges as we transition into 2023. China’s construction industry is experiencing a rapid slowdown from just 6 months ago. A slower growth rate appears to be the norm as we move into 2023. The halcyon days of record-breaking construction growth appear to be over. Just how many highways, bridges, and high-speed rail projects can be financed and built? |
| INDIA | 5.9 – 6.9 | 6.4 – 7.1 | 7.9 – 8.3 | India’s construction industry continues to experience ongoing growth. India has a considerable need for new civil engineering/highways, bridges, and other transport and power-related projects in the next 6 to 18 months.
Many of China’s electronic/cell phone manufacturing factories have been closed for lengthy periods, allowing India the opportunity to take over this critical manufacturing business. |
1st Q 2023 Prices at a Glance:
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