We all know inflation, supply-chain struggles, the worker shortage, project delays, and the geopolitical conflict is hampering growth in all vertical markets, but what specifically is on the horizon for the construction industry? Will the residential segment remain strong? Are we headed for a recession before the year is up? When will infrastructure work truly take off? And make no mistake there are a host of predictions on each of these topics. Perhaps now is the perfect time to explore one of them.
At the beginning of this month, FMI released its 2022 North American Engineering and Construction Outlook Second Quarter Edition, which gives an interesting twist on what is to come for the rest of the year. In the report, FMI forecasts construction spending will end 2022 up 7% compared to being up 8% in 2021.
Drivers for growth include strong investment in residential and manufacturing, which will drive spending through the end of this year. The outlook also suggests expected increases in infrastructure funding later this year, which are expected to lead to growth in nonbuilding segments, including highway and street, sewage and waste disposal, and water supply. Each of these areas anticipated are slated to receive some spending which should lead to growth rates of more than 5% this year.
Meanwhile, segments such as commercial, healthcare, transportation, communication, power, and conservation and development will remain stable, while lodging, office, educational, religious, public safety, and amusement and recreation will be down.
So, then, what about those rumblings about a potential looming recession? FMI does acknowledge risk of a recession in the coming quarters has been elevated when accounting for the most recent changes in predictive recessionary indicators, such as yield curve inversion and consumer sentiment.
However, FMI suggests U.S. economic fortitude will be driven by strong demand for labor and will provide future stability through the end of the year. What could become challenging is rising interest rates and inflation, which could impact private investment. As I see it, we do have a lot of consultants to help us through the recessionary times, don’t we?
All in all, the latest NRCI (Nonresidential Construction Index) suggests ongoing optimism as we move further into the second quarter of 2022, which is being held by strong demand and backlog expansion. Hindering factors are obviously the high costs for materials and labor. However, if we head into a recession, will we see a dip in material costs or a rise? Still, the index suggests increased engineering and construction opportunities in the months ahead. Perhaps this is a perfect time to ask all those consultants? Do you agree? What are you seeing in your segment of the market?
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