United States Construction Market Trends

Executive Summary

The Current Situation

• As provided by the St. Louis FRED, the construction employment cost index is now up 4.6% from this time last year with a slight increase of 0.4% compared to last quarter. Historically, this index has increased approximately 3.5% year-over-year since 2017.
• According to the U.S. Bureau of Labor and Statistics, the construction industry labor force increased by 4.3% over the last six months while construction unemployment remains very low at 3.8%.
• Finding skilled labor continues to remain a major challenge for all aspects of the industry inclusive of shipping and trucking, manufacturing and on-site construction.

Supply Chain & Material Availability

• The freight cost Index is down from last quarter despite petroleum costs being much higher. The cost of No. 2 diesel fuel was +$0.79/gallon or 20.8% higher than last quarter. Diesel is the predominant fuel in the US supply chain for shipping and freight distribution.
• Availability has improved for many construction materials, while mechanical and electrical equipment continue to maintain extended lead times. Most notably are transformers, diesel generators and switchgear; the latter two items having lead times of a year or more.
• Materials and commodities costs are generally stable over the last quarter.

Contractor Confidence & Construction Volume

• Contractor backlog continues to remain very strong at +9.0 months nationally as reported by Associated Builders and Contractors (ABC) in September.
• According to data from the U.S. Census, private commercial construction volume increased +7.8% since last quarter and +6.7% compared with last year. Year-over-year commercial volume has now remained positive since Q1 2021.
• Contractor confidence remains somewhat mixed in the industry for a third straight quarter but seems to be on the upswing as confirmed by most of the publications monitored and surveyed by the Market Trends Team.

Cost Escalation

• The Consumer Price Index (CPI) rate reached 3.7% in August 2023, compared to the 40-year high of 9.1% back in June 2022. This is compared to the 40-year historical U.S. average of 3.8%.
• The Federal Open Market Committee (FOMC) continues raising interest rates as necessary in an effort to return inflation to the targeted 2% range.
• The CBRE Construction Cost Index showed a decline in annual escalation from 2022 and is forecast at 6.5% (±2%) for the year. This is still higher than the 10-year average of 3-6% per year.