The construction sector is staging a solid recovery despite higher material prices, shortages of key goods, and scarce labor. Nonresidential starts are flourishing as many commercial and institutional building types have made the turn from the downside of the cycle to the upside. Tattered supply chains have been a boon for the manufacturing space as chip plants, EV battery facilities, and food production plants have broken ground over the past few months.
Residential starts are mixed. Single family starts are down slightly as higher mortgage rates and lack of supply are scaring buyers away from the market. On the other hand, what’s been bad for the single family market has been good for multifamily. Tight rental markets across the county are leading to more condo and rental construction.
Infrastructure is flat as well. The delay in Congress approving the appropriations packages for the current fiscal year has led to a delay in funds from the infrastructure act being distributed. They are now, though, so this market should shift to the upside soon.
So with these positive thoughts, it seems like a great time to introduce even more uncertainty into the forecast.
The Federal Reserve is walking a tightrope. They are attempting to raise interest rates to combat inflation, while not forcing the US economy into recession. This is a feat that has seldom been accomplished.
While a recession is not our baseline forecast, it can not be fully discounted. If a recession were to occur it would most likely thwart the current momentum. Simulations run against our construction starts forecast with a recession in late 2022 through mid-2023 points to a 12% decline in nonresidential building starts for 2023.