Following months of volatility in the stock market, along with record high inflation and supply chain issues, some economists are bracing for a coming recession. In construction, there are always those seeing signs of a coming downturn in the cycle, but others see reasons to remain optimistic.
“As of now, I still consider recession unlikely. Employment and wages are still growing strongly,” says Ken Simonson, chief economist at the Associated General Contractors of America. “In fact, with job openings at record highs and the unemployment rate near a record low, it appears likely that labor income will increase further. That, in turn, supports an expansion of consumer spending.”
Simonson notes that non-residential construction is largely motivated by long-term demand, as opposed to “short-term swings in income or wealth.”
Still, some sectors are on stronger footing than others. “Demand appears to be strong for infrastructure, many types of manufacturing facilities, energy, and data centers,” says Simonson, adding that multi-family construction should also continue to see growth. Single-family housing, however, along with office, hotel and retail, are more likely to continue to weaken.
Alex Carrick, chief economist at ConstructConnect, shared a similar sentiment. “A slowdown or recession in the general economy may occur in the months ahead, but there are reasons to remain upbeat about hearty prospects for many aspects of building and engineering construction,” he says, pointing to low unemployment as well as major projects financed by the infrastructure Investment and Jobs Act that are soon to break ground.
Richard Branch, chief economist at Dodge Construction Network, is more skeptical, calling the chances of a recession in the next 12 months “uncomfortably high” at roughly 35%. Should one occur as soon as late this year, Dodge forecasts that “nearly four percentage points would be shaved off the expected 2022 nonresidential building starts forecast, and in 2023 nonresidential building starts could fall by as much as 12%,” says Branch.
Like Simonson, Branch points to office and hotel work as most at risk. “These concerning results suggest that businesses need to start building downside scenarios into their business plans for 2023,” he says.