Construction Economic News

Return on investment is an essential component in the decision-making process of owners and developers of new construction projects, as it measures the difference between the income stream from an investment and its cost, usually on an annual basis. As such, a construction project can raise its ROI by either increasing its income-generating ability or by decreasing its construction costs and/or operational expenses.

As ConstructConnect has reported previously, the markets for single and multi-family homes have taken divergent paths in recent months. In large part, this has resulted from sweeping interest rate increases coupled with recent years of strongly rising home prices.

While the business cycle impacts virtually all businesses, the timing of its impact can vary between industries. In my past work as a Chief Economist in the manufacturing sector, I carefully studied and wrote about the manufacturing business cycle between 2017 and early 2022. During this time—and as in prior business cycles—it was very clear that changes in new orders for manufactured products led all other components of manufacturing activity.

Large U.S. domestic banks at the start of September 2022 had $1.46 trillion* in commercial and industrial loans outstanding; representing an 18% increase from a year ago. This marks the fastest expansion in C&I loans from the large banks category since 2008.

Much has been made of the efforts by the U.S. Federal Reserve Bank to raise interest rates in order to cool down price inflation without also sending the overall economy into a recession. Achieving this feat will be a considerable task as it requires the right balance of slowing down the various elements of total economic activity, as measured by Gross Domestic Product without sending it into reverse.

ConstructConnect’s Expansion Index, a monthly measure of the dollar value of planned or contemplated construction projects compared to the same month one year ago, for September 2022 was 10% and 20% higher overall in Canada and the United States, respectively.

In recent months, the price spread between European natural gas and U.S. natural gas has grown to unprecedented levels in modern history, largely because of Russia’s tactical closure of major gas pipelines to EU nations. The latest data from the International Monetary Fund and U.S. Energy Information Administration put the price difference measured in dollars per Million British Thermal Units at $42.82. As a result, energy costs in the EU are many times greater than in the United States.

One important indicator of supply chain conditions is the Manufacturing Supplier Deliveries Index produced by the Institute for Supply Management This index is calculated using the responses from a monthly survey sent out to manufacturers across the United States. The survey’s question about supplier deliveries asks whether they are arriving faster, slower, or unchanged compared to the prior month.

Residential construction firms can partially insulate themselves from a market correction by understanding that different factors—each with their own unique causes and timing—affect the single and multi-family housing market.

The August data released by the New York Federal Reserve for their Empire State Manufacturers Delivery Time Index pointed to a slight contractionary reading of -0.9. This marks the first time since COVID-19 that the Fed’s supply chain survey has pointed to faster supply chain performance.