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2023 Nonresidential Construction Forecast: “Moderate” By CRAIG DILOUIE, LC, CLCP
In 2021, the U.S. rebounded from 2020’s short but devastating pandemic recession with the strongest economic growth in nearly forty years. In 2022, the economy remained resilient despite high inflation and rising interest rates, ending the year with signs that inflation may be easing. Due to these and other factors, global think tank The Conference Board forecasts that the economy will endure a resulting brief and mild recession in 2023 and then rebound in 2024.
strong 11.8% to a seasonally adjusted annual rate of $930 billion as of November 2022.
A major contributor to the economy is construction, which overall exhibited very strong growth in 2022. Despite a strong finish to the year, however, nonresidential construction spending is expected to moderate in 2023 and slow significantly in 2024, according to the American Institute of Architects (AIA) Construction Consensus Forecast Panel, made up of leading economic forecasters. The Panel forecasted that nonresidential construction spending will moderate to grow a healthy 5.8% in 2023 but then slow to less than 1% in 2024.
Dodge Construction Network
“One of the key construction storylines for 2022 was the return of enthusiasm and optimism in prospects for nonresidential growth,” said Richard Branch, chief economist for Dodge Construction Network. “While some of that will likely erode in 2023 as economic growth wanes, increased demand for some building types like data centers, labs, and healthcare buildings will provide a solid floor for the construction sector.”
2022 Construction Spending According to the U.S. Commerce Department, U.S. put-inplace construction spending grew to a seasonally adjusted annual rate of $1.8 trillion in November 2022, the latest month for which data was available at the time this article was written. Year over year, total spending increased 8.5%. By sector, residential construction spending grew 5.3% to a seasonally adjusted annual rate of $877 billion as of November 2022. Nonresidential construction spending, meanwhile, grew a
Private nonresidential construction grew 8.1% on a seasonally adjusted basis, and public nonresidential construction grew 10.4%. Overall, the top market segments were manufacturing (+42.9%), lodging (+30%), commercial (+20.3%), and highway and street (14.8%).
The year ended on a positive note, indicating positive momentum moving into 2023. According to Dodge Construction Network, total construction starts jumped 27% in December to a seasonally adjusted annual rate of $1.185 trillion. Nonresidential building starts increased 51%, nonbuilding starts increased 30%, and residential starts rose less than 1%. “December starts revealed where the current strength in the construction lies: manufacturing and infrastructure,” said Richard Branch. “It is those segments that will provide insulation for the sector as the economy softens in 2023. Recession or not, higher interest rates will weigh on the economy and restrain construction starts in 2023. However, it’s encouraging to know that the new year is starting with a great deal of positive momentum.” In December 2022, the Dodge Momentum Index (DMI) improved 6.6% to 222.2 from the revised November reading of 208.3. The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year. On a year-over-year basis, it was 40% higher than in December 2021; the commercial component was up 51%, and institutional planning was 20% higher. In December, the commercial component of the DMI rose 8.4%, and the institutional component ticked up 2.7%.
“One of the key construction storylines for 2022 was the return of enthusiasm and optimism in prospects for nonresidential growth.” − Richard Branch 56
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