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Construction Growth in Q3 2024

The latest data from the CBIZ Commercial Construction Index highlights an encouraging trend for the construction industry as we approach the end of 2024. Despite the challenges faced throughout the year, activity in both the residential and nonresidential sectors shows promising signs of growth, largely propelled by significant infrastructure initiatives and expansive manufacturing megaprojects.

Key Findings in Nonresidential Construction

According to the report, nonresidential construction has seen a robust increase, primarily due to federally incentivized spending on manufacturing projects. Chief Construction Economist Anirban Basu noted that construction expenditure related to manufacturing remains at elevated levels. This trend is reflective of the broader push for reshoring production capacities, a move that is further supported by potentially favorable trade policies from the upcoming presidential administration.

Basu commented, "Manufacturing-related construction spending remains extraordinarily elevated due to federally incentivized megaprojects and a broader effort to reshore production capacity." This indicates a concerted effort to enhance domestic manufacturing contexts, which is vital for stimulating the local economy.

Residential Construction Trends

Conversely, the residential construction sector, while still performing well compared to pre-pandemic levels, has observed a deceleration over the first three quarters of 2024. Basu reiterated that there exists a structural housing shortage in the United States that homebuilders will eventually address. However, he anticipates that residential activities may continue to taper off in the coming months, particularly until interest rates decline significantly. He stated, "Residential activity is likely to slow in the coming quarters and won't rebound until interest rates are meaningfully lower."

Job Growth and Workforce Dynamics

Despite a slowdown in residential construction, the industry continues to experience robust job growth. CBIZ reported that the construction sector added jobs for the fifth consecutive month in October. The industry's hiring rate has doubled that of the broader economy over the past year, showcasing a remarkable demand for skilled workers.

Basu pointed out the impact of natural disasters, such as hurricanes Helene and Milton, which could have spurred even faster job growth if not for the disruptions caused by these events. It's clear that the construction sector remains a vital employment engine in a recovering economy.

Material Prices and Economic Outlook

On the cost front, lower material prices in 2024 have helped mitigate overall construction expenses. However, there remains a level of uncertainty regarding future input prices, particularly as changes in federal policies loom ahead. Basu warned that potential tariffs could increase costs significantly, especially for materials sourced from China, which could disrupt the recent stability seen in prices.

Despite a recent reduction in interest rates by the Federal Reserve, borrowing costs remain elevated. Observations from the market suggest that bond yields have risen since the election, indicating expectations for interest rates to stay higher for an extended period than previously predicted.

Conclusion

The outlook for the construction sector remains mixed yet hopeful as we approach the end of 2024. The significant investment in infrastructure and manufacturing projects presents a strong foundation for growth, while the residential sector navigates a restructuring phase following a period of unprecedented demand. Moving forward, the industry's ability to adapt to changing economic conditions and maintain workforce momentum will be crucial for continued success in the years to come.

As CBIZ further expands its insights following the acquisition of Marcum LLP, the construction index will better reflect these evolving trends, offering valuable guidance for stakeholders in the industry looking to navigate this dynamic landscape effectively.