The Marcum Commercial Construction Index for the second quarter of 2023 reports that the construction industry retained momentum through the first half of the year despite ongoing headwinds in the form of labor shortages, high borrowing costs, and tight credit conditions. While certain segments, like manufacturing-related construction, have continued to surge, spending in other segments has moderated as the economy slows.

The index is produced by Marcum’s National Construction Services group.

Manufacturing-Related Construction

Manufacturing-related construction continued to power the nonresidential segment through the second quarter. “Manufacturing-related construction—propelled by the Inflation Reduction Act, the CHIPS Act, and the reshoring movement—continues to rise at an astonishing pace, up by more than 100% since the start of 2022,” said Anirban Basu, Marcum’s chief construction economist and author of the report. “Because of the size, scale, and anticipated duration of many of these projects, not to mention the rate at which they’re being announced, manufacturing-related construction spending should remain elevated through the remainder of 2023.”

Material Price Stabilization

Material prices, which rose at an alarming rate during the early parts of the pandemic, have finally settled. “The pandemic-induced period of rapid construction input cost increases is firmly in the rearview mirror at this point,” said Basu. “Input costs were unchanged in June 2023 and are nearly 5% less expensive than in June 2022, according to the Producer Price Index.”

Persistent Wage Pressures

While input prices have stopped rising, wage pressures remain an issue for the industry. “Labor shortages, despite modest improvement in recent months, continue to frustrate hiring,” said Basu. “As of June, 4.5% of all construction jobs were open and unfilled. That’s well above the 3.9% rate at the start of the pandemic but well below the all-time high of 5.8% established in December 2022. Shortages are likely more severe in certain regions, especially those participating in the manufacturing-related construction boom.”

Outlook

Both the construction industry and the broader economy have held up better than anticipated through the first half of 2023. Still, high borrowing costs and weakness in the commercial real estate sector may reduce construction volumes in the coming months. “The upshot is that commercial real estate represents a real risk to the economy, albeit one surrounded by uncertainty, and construction projects may have a difficult time securing financing in the months ahead.”

Marcum’s national construction leader, Joseph Natarelli, said, “Warning signs and historical trends of a downturn are out there and have been for a little while. The construction industry, always the first to feel the pinch and last to be relieved of it, saw some minor downturns this June. Jobs are plenty, and unemployment is low, but nonresidential spending hasn’t grown over the past year, and that includes 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.”

To download the Marcum Commercial Construction Index, visit https://info.marcumllp.com/commercial-construction-index-q2-2023

About Marcum Construction Services
Marcum LLP is one of the leading construction accounting firms in the U.S., providing audit, consulting, and taxation services to clients ranging from start-ups to multi-billion-dollar enterprises. Among the country’s foremost experts in construction accounting, Marcum’s construction professionals are frequent industry authors and speakers and serve as technical reviewers for the AICPA’s construction audit and taxation guides. Marcum’s construction group also publishes several definitive industry and presents an ongoing series of industry summits and technical webinars focused on the unique needs of construction contractors.

About Marcum LLP
Marcum LLP is a top-ranked national accounting and advisory firm dedicated to helping entrepreneurial, middle-market companies and high-net-worth individuals achieve their goals. Marcum’s industry-focused practices offer deep insight and specialized services to privately held and publicly registered companies, and nonprofit and social sector organizations. The Firm also provides a full complement of technology, wealth management, and executive search and staffing services. Headquartered in New York City, Marcum has offices in major business markets across the U.S. and select international locations. #AskMarcum.