New York – The Marcum Commercial Construction Index for the third quarter of 2023 reports that the construction industry’s momentum continued through summer despite high interest rates, tight credit conditions, and labor shortages. Infrastructure and manufacturing-related construction once again outperformed, while other nonresidential categories struggled. The index is produced by Marcum’s National Construction Services group.
Anirban Basu
With demand for construction services elevated, contractors increased their staffing levels throughout the third quarter. “The construction industry added jobs for the seventh straight month in October,” said Dr. Anirban Basu, Marcum’s chief construction economist and author of the report. “Much of the hiring over the past year has been concentrated in the nonresidential building category, which saw a 6% increase in employment between October 2022 and October 2023.”
Hiring likely would have been faster if not for labor shortages. “Despite strong hiring over the past year, worker shortages and rising labor costs represent a pressing issue for the industry,” said Basu. “Average hourly earnings for construction workers increased at more than twice the rate of economywide earnings in October and have outpaced broader wage growth over the past year.”
As was the case in the first two quarters of 2023, employment gains and increases in construction spending are largely attributable to manufacturing-related megaprojects. “Bolstered by the Inflation Reduction Act, the CHIPS Act, and the private sector desire to reshore capacity, manufacturing-related construction continued to outperform during the third quarter,” said Basu. “Spending in the category is up more than 60% of the past year and, despite the pace of increase moderating since May, is still up more than 150% since the start of the pandemic.”
While commercial construction remains weak, certain subsegments have outperformed. “Commercial construction spending has increased a modest 8% over the past year (spending data is not adjusted for inflation) but remains up nearly 44% since the start of the pandemic,” said Basu. “This progress is almost entirely concentrated in the warehouse category, a subsegment that has come to dominate the commercial category due to the rise of E-Commerce.”
Despite the industry’s momentum, there are signs that the consumer side of the economy is weakening, threatening the broader economic outlook. “Approximately 5.8% of credit card debt was seriously delinquent (90+ days overdue) in the third quarter, the highest share since the fourth quarter of 2011,” said Basu. “That will slow economic growth, increasing the chance of both a recession and rate cuts in 2024.”
Joseph Natarelli
Marcum’s national construction leader, Joseph Natarelli, said, “Warning signs and historical trends of a downturn are out there and have been for some time now. The construction industry, always the first to feel the pinch and last to be relieved of it, experienced some minor downturns in June. Despite plenty of jobs and low unemployment, nonresidential spending hasn’t grown in the past year, including the increases we saw in governmental and infrastructure spending. For now, we are advising our clients to take a skeptical and informed eye to the future.”
