U.S. Construction Market: Labor Crunch, Rising Costs, and Regulatory Shifts in 2023

Executive Summary

The current state of the US construction market is characterized by escalating labor costs and tight competition for skilled workers. The industry struggles with a limited pool of experienced professionals, driving up wages due to high demand that outpaces supply. This pressure comes from an aging workforce as well as a lack of younger generations attracted to trade careers.

Nationally, unemployment rates remn low at 3.4, indicating the overall workforce's contraction by 2. As of December, there were 374,000 open construction industry positions, marking a decline of 4.1 compared to the same period last year but still indicative of persistent demand.

Fuel costs have seen significant decreases since the previous quarter with No. 2 diesel fuel prices dropping by $0.76gallon or 16.4. This reduction in freight expenses offers some relief to construction supply chns, as diesel is crucial for transportation activities.

Material avlability and accessibility remned largely stable over this period, although delays and reduced avlability of electrical equipment continue.

The Environmental Protection Agency EPA plans to enforce new regulations on the HVAC industry starting January 1, 2025, med at curbing greenhouse gas emissions from coolants. The specific impacts are yet to be fully understood but will surely affect the construction sector.

Contractor backlog remns robust nationwide with an average duration of 8.6 months according to Associated Builders and Contractors ABC as of December. However, A's Construction Consensus Sping Forecast predicts negative growth trs for most sectors over the next two years. This includes a downturn in volume for office, commercial, and residential construction, as reported by the U.S. Census, which showed nearly flat private commercial and office construction volumes since last quarter.

Contractor confidence fluctuates between optimism and challenges, emphasizing adaptability, innovation, and collaboration as key strategies to navigate uncertnties in building industry futures.

Inflation rates have moderated from their peak of 9.1 in June 2022 to a more stable rate of 3.3 by December 2023. The Federal Open Market Committee continues adjusting interest rates towards a targeted inflation level of 2.

The CBRE Construction Cost Index showed annual escalation in costs, reaching 4.9 ± 2 for the year, still higher than pre-COVID industry averages which were typically between 2-5 annually.

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