It’s a question on the minds of construction professionals for some time now: Is the United States about to enter an economic recession?
As more economic experts weigh in whether one is impending, the mindset of “not if but when” seems to be an increasingly common position. Of course, while global economic growth has slowed to a 2.9% in 2023 and U.S. growth is projected to slow to 1% in 2024, it’s not as simple as pointing to one single data point that will tell us how the economy will look in the future.
Danny Richards, Lead Economist for Global Data, which tracks more than 200,000 constructions projects globally and provides forecasts and analysis for 90 construction markets, summarized key trends at CONEXPO/CON-AGG 2023.
He noted that the construction industry is a major influencer on every country’s economy – the U.S. is no different.
Data’s everywhere – but what does it mean?
The U.S.’s overall construction output decreased in 2022 to after moderate growth in 2020 and 2021, but a slow recovery is expected to begin in 2023.
Nearly half of all U.S.-based construction output is residential. While this sector’s growth is still lower than average compared to pre-pandemic – a direct result of the inflationary pressure that continues to weigh down construction output. The country’s aggressive monetary tightening and “real income squeeze” have caused construction demand for homes to fall.
On the flip side, categories like infrastructure and utilities are projected to grow due to public spending programs. The Infrastructure Investment and Jobs Act (IIJA) was enacted nearly three years ago, but its effects will continue to fortify the construction industry into 2024 and beyond. This act was designed to bring at least $1.2 trillion in infrastructure improvements and renewals to highway safety, electric grids, rail programs and other various categories of construction.
“Perhaps not so much this year, but definitely moving into next year and over the next five years, we should see a real pickup in infrastructure and energy and utilities,” Richards said.
Look to what global regions are doing right
Looking at the regions (South Asia, China, Middle East and North Africa) that have experienced the highest levels of growth following the pandemic, during which every region experienced a decrease in construction output, it begs the question, can the U.S. learn anything from these regions?
China’s reopening following its Zero-COVID Policy and its investment in infrastructure could allow for faster-than expected growth in 2024, and an easing of its Three Red Lines policy that was designed to resolve debts in the property-development sector should also play a role in a projected 3.9% increase in construction output.
Southeast Asia is experiencing a two-speed recovery, with some countries in the region growing at a faster rate than others. Vietnam, specifically, is a standout performer with 6% expected growth this year, although experts have warned of a potential real estate crisis if the market overheats.
India’s booming recovery is being driven by a record increase in construction output, and efforts in Pakistan are being fueled by recovery efforts after unprecedented flooding.
Eastern Europe has experienced the slowest recovery, largely due to the conflict between Russia and Ukraine – the impact of which is being felt globally.
How long could a recession last?
Richards noted that, based on Global Data’s analysis of historical trends, we can utilize the known longevity of the 2008 financial crisis as a template for how quickly the U.S. could expect to recover from the current downturn. As seen on the graph, we can see a similar projection of expected growth of three to four years post-pandemic just as the U.S. saw recovery three to four years after the 2008 financial crisis.
Historically, Richards stated, once an economic recovery is more certain, construction growth outpaces other sectors. “Positive scenarios there in terms of how the overall construction industry could regain momentum in the coming years,” he said.
There are major opportunities in the pipeline for infrastructure, industrial and energy projects totaling an estimated $3.6 trillion. Nearly 54% of which consists of projects in either the pre-planning or planning stages.
In summary
While a recession is still a likely possibility, we also can see signs of light at the end of the proverbial tunnel for this current economic downturn. It doesn’t mean the road getting there won’t have some challenges.
Data currently supports positive projections and recovery on the horizon in certain sectors, and historic trends support the likelihood of a strong rebound for the construction industry overall. However, there’s still the looming threat of inflation, rising interest rates and a skilled worker shortage, as well as the impacts of climate crises, unforeseen national emergencies and global unrest.
Richards summarized: “Despite some of the gloomy short-term indicators and short-term risk, we do have a relatively positive longer-term outlook.”
Key trends to watch
- Global economic growth to slow to 2.9% in 2023 but is projected to bounce back to 3.1% in 2024.
- Most say a U.S. recession is inevitable – just a question of timing. U.S. growth projected to slow to 1% in 2024.
- Global economic activity still weighed down by weaking investments fueled by higher interest rates, inflation, and global unrest due to the Russia/Ukraine war.
- Downside risks dominate, but China reopening following it’s Zero-COVID Policy could allow for faster-than-expected growth.
- Global construction output slowed to 1.7% in 2022, fueled by a slowdown in “advanced economies” but offset by growth in “emerging markets.”
- Ongoing challenges impacting the construction industry include high energy and materials prices and the skilled labor shortage.
Image credit: Global Data/CONEXPO-CON/AGG 2023
