What’s the outlook in the coming election year? Positive? Negative? AGC’s chief economist and a host of other industry professionals are choosing from both columns of the menu.
BY AMY DREW THOMPSON
Overall, says Ken Simonson, chief economist for AGC of America, the industry forecast in the coming year is positive.
This is the industry temperature, as results of the association’s annual business outlook survey are being examined. But industry pros we spoke with feel similarly, even if their optimism is tempered by a bit of cautiousness.
Maintenance of the numbers, says Krysta Van Ranst, is what most of her clients are looking for in 2024.
As the founder and learning business partner for Building PPL, an AGC of Massachusetts member, Van Ranst and her team help construction companies procure funds through training grants and/or build out learning and development initiatives within their own organizations.
While a few companies they work with are eager to see growth, it’s been the outlier, she says.
“Most are a little unsure,” says Van Ranst. “They’re looking at their budgets more strategically than in the past, ‘Where do we keep spending? Where do we tighten up?’”
Economic uncertainty, she believes, is what’s prompting conservatism.
“The overall cost of doing business. Interest rates. I think many people are feeling like a holding pattern for the next 12 to 18 months is the wise move.”
Indeed, says Simonson, though he and most survey respondents expect construction activity to grow, there are definitely soft spots in the forecast.
“Developer-financed categories such as multifamily, office and warehouse construction look like they will be contracting in 2024,” Simonson told Constructor, tacking both retail and lodging onto the iffy side of his projections.
“But I think those negatives are going to be outweighed by a gradual pickup in single-family construction and continued strength in data centers and manufacturing plants. I also think there are some very good prospects for a variety of infrastructure and power/renewable energy categories, though the timing is uncertain.”
Not surprisingly, in both the survey and our queries, the No. 1 cited challenge was labor, though in some ways for different reasons than in the past.
“Finding qualified workers is harder than it was before the pandemic,” says Simonson. On one hand, he notes, many more jobs can now be done remotely or on a hybrid basis with flexible hours, which is still not possible for on-site construction jobs. But also, the pay structure has changed.
“The pandemic pushed up wages for entry-level jobs everywhere from restaurants and delivery companies to warehouses,” Simonson explains. “So the premium that construction has paid to get workers is no longer as attractive as it had been.”
He projects that contractors will have to raise wages even more to make up for the perceived disadvantage of all-weather and end-to-end shift work.
For the heavy industrial pros at Colorado-based Industrial Constructors/Managers (ICM), an AGC of Colorado Building Chapter member, regulations regarding everything from greenhouse gas reduction to gas-to-electric conversion is daunting enough before thinking about who’s there to do the work.
“In just Denver alone, if you were to implement everything, if all the work that had to be done to meet those regulations had to happen by 2026, we wouldn’t have anywhere near enough people to get it done,” says ICM Vice President Jamie Hodges.
Not to mention that at press time, he said, simply replacing a boiler was 65 weeks out due to equipment shortages.
On the positive side, ICM has been having success in going to high schools and specialty schools, connecting with young people who are interested and engaged, and building their ranks.
“The big thing we’ve been focused on the past couple of years is hiring people based on their culture and then training them for performance,” he says. “If they’ve got the right attitude, if they’re open to learning, we can teach them to do what we need.”
The roster of new regulations, says Hodges, has varying deadlines: 2026, 2030, 2040 – contractors are still making sense of it all.
“In the commercial market, people are thinking, ‘What do we have to change in the design for new construction? What do we have to do to get existing buildings up to speed?’ And so many people are on pause trying to figure that out.”
The coming election, too, says Hodges, has folks on the sidelines waiting to see what’s going to happen, but Simonson – who’s spent 22 of his 50 years as an economist at AGC – says it’s a premature topic.
“An election year itself doesn’t make much difference in business plans,” he says. “Certainly, who controls the White House, particularly if that party also controls Congress, can make quite a difference in regulations or the kinds of tax incentives that are in place, but that’s a story for 2025 or later.”
Kamryn Babcock, executive vice president of strategy execution for The Weitz Company, a member of multiple AGC chapters, has seen a lot since she joined its ranks 25 years ago. She’s been in her current position for five, aiding the organization in strategic planning, “but the real value comes in putting the execution of that strategy into play.”
Weitz has seen a lot of opportunities in infrastructure/aviation, “and we’ve had very nice wins on the industrial side in things like food production and processing…. But the data center work just continues to explode.”
Projections from scientists note that there will be three times the amount of data captured, created and consumed worldwide, “even as overall capacity [within current data centers] is declining. The build demand is just intense.”
But another trend she’s seen – and what she believes will persist in 2024 – are the number of partnerships that have been forged on what she calls “megaprojects.”
“Semiconductor, EV battery,” she rattles off, “the money that’s flying through the infrastructure bill on hydrogen hubs and alternative energies…. It’s an interesting time because there are several large GCs that could probably do some of those megaprojects alone but the number of collaborations that are happening in the industry is just unprecedented.”
It’s a part of their strategy, she notes, to develop healthy strategic relationships, “both to spread the risk and share the knowledge.”
And as the larger contractors seek to partner with one another, so, too, are they seeking trade partners to get the jobs done.
“The good trade partners are locked up for longer durations because of larger projects and all the work out there,” she notes. “The pressure on the trades is real. And we’re hearing from our surety partners that they’re seeing stress…. Are they really as healthy as their balance sheets have appeared in the past? Can they sustain the size and the payrolls needed to complete these really large projects? The trades will be something we’ll continue to look at.”
As will AGC at the most promising markets. A biggie for manufacturing, says Simonson, is Columbus, Ohio, where the biggest semiconductor fabrication plant is currently going up.
“It’s not just this one plant, but a number of manufacturers, data centers, population growth seems to be better there than in most of the Midwest. There’s a lot of demand for construction around Columbus, which is not what you’d think of as a traditional growth market.”
Other notables include Florida, which in 2022 displaced five-years-running leader Idaho in population growth (though The Gem State’s still a close second).
The high cost of living, congestion and the difficulty in doing business in traditionally robust cities has prompted a continued exodus and led to high growth in the entire Mountain West area from Arizona to Montana.
“It’s been a matter of dispute among economists and market placement people and politicians for decades as to how important taxes are for individuals and businesses but I would say that there is a correlation,” Simonson says.
Trends have seen people migrating from higher tax states to places like Florida, Tennessee, Texas and Arizona, which he points to as another for high growth potential.
“It also has two of these giant semiconductor plant projects, though I do worry that it’s going to run out of water.”
Concerns for that aside, Simonson says AGC survey respondents are optimistic, overall, about the demand for construction in various industry segments.
“More of them expect the market to grow than shrink in 2024.”