Despite Challenges, Construction Industry Expected to See Moderate Growth in 2023

The construction industry in the United States saw mixed results in August 2023, with some sectors showing growth and others declining. Overall, construction starts fell 11.3% from July to an annual rate of 1.283 million units. This was the lowest level since June 2020.

The decline in construction starts was driven by a sharp drop in the multifamily sector. Multifamily starts plunged 26.3% from July to an annual rate of 334,000 units. This was the lowest level since March 2020.

Despite Challenges, Construction Industry Expected to See Moderate Growth in 2023

The single-family sector also saw a decline in construction starts, but the decline was less severe. Single-family starts fell 4.3% from July to an annual rate of 941,000 units. This was still 2.3% higher than the level a year prior.

Despite the decline in construction starts, there were some positive signs in the August construction data. Construction permits rose 6.9% from July to a seasonally adjusted rate of 1.543 million units. This was the highest level in ten months. Permits were, however, still down 2.7% on an annual basis.

The increase in construction permits suggests that there is still a strong demand for new construction. However, the decline in construction starts suggests that builders are struggling to keep up with demand. This is due to a number of factors, including high construction costs, labor shortages, and supply chain disruptions.

Nonresidential Construction

Nonresidential construction activity increased in August, with total starts rising 6% to a seasonally adjusted annual rate of $1.3 trillion. The gain was driven by a large pickup in manufacturing and transportation buildings. Residential and nonbuilding starts fell 1% and 14%, respectively.

The increase in nonresidential construction activity is a positive sign for the US economy. It suggests that businesses are investing in new capacity and that the manufacturing sector is continuing to grow.

Construction Backlog

The construction backlog remained unchanged at 8.7 months in August. This is a full month higher than in August 2021. The backlog is down from the levels of the second quarter of 2022 but remains higher than at any point from March 2020 to March 2022.

The high construction backlog suggests that there is still a lot of work to be done in the construction industry. However, the fact that the backlog has remained unchanged in recent months suggests that builders are struggling to keep up with demand.

Outlook for the Construction Industry

The outlook for the construction industry is mixed. On the one hand, there is still a strong demand for new construction, both residential and nonresidential. On the other hand, builders are facing a number of challenges, including high construction costs, labor shortages, and supply chain disruptions.

The Federal Reserve's interest rate hikes are likely to further weigh on the construction industry in the coming months. Higher interest rates will make it more expensive to borrow money for construction projects. This could lead to a decline in new construction starts in the coming months.

Overall, the construction industry is likely to see moderate growth in the coming months. However, the industry is facing a number of challenges that could slow growth in the second half of 2023 and into 2024.

Additional Updates and Analytics

• According to a recent report from Dodge Data & Analytics, the total value of construction starts in the United States is expected to reach $1.5 trillion in 2023. This would be a 5.4% increase from the 2022 level.

• The nonresidential construction sector is expected to be the main driver of growth in the construction industry in 2023. Nonresidential construction starts are expected to increase by 8% in 2023.

• The residential construction sector is expected to see more modest growth in 2023. Single-family construction starts are expected to increase by 2% in 2023, while multifamily construction starts are expected to decline by 5%.

• The construction industry is expected to face a number of challenges in the coming months, including high construction costs, labor shortages, and supply chain disruptions. However, the overall outlook for the industry is positive.