Construction Economic News
After a gloomy patch in late summer and early fall, dominated by discussion of inflation and recession, the economic and construction news is beginning to lighten a bit. The first ray of sunshine has come in the 2022 third quarter advance estimate GDP report. Rather than retreating or standing still, Q3 real gross domestic product advanced by +2.6% seasonally adjusted and annualized, improving nicely on the -0.6% and -1.6% performances of Q2 and Q1, respectively.
Megaprojects Reignited Starts in September ConstructConnect announced today that September 2022’s volume of construction starts, excluding residential work, was $51.1 billion, an increase of +26.0 compared with August’s figure of $40.6 billion (originally reported as $40.0 billion).
The accompanying table records the top 10 project starts in the United States for August 2022.
Clichés are often true and it is the case that a picture can be worth a thousand words.
In mid-2022, overall inflation by some measures was approaching 9%, a 40-year high following more than a decade of historically low inflation rates. However, for manufacturers, distributors, and others purchasing raw materials, 9% annual inflation pales in comparison to the kinds of price swings these firms experienced for their raw materials beginning in mid-2020. For construction firms and product manufacturers, the last two years have been spent trying to raise output prices fast enough and high enough to cover rapidly increasing input costs.
The relationship between manufacturers, wholesalers, and end customers has been well documented over the last many decades. To speed the delivery of products to end users, wholesalers preemptively store finished products for quick sale. At the same time, wholesalers can decide whether or not to order replacement inventory from manufacturers which results in further orders to their suppliers. This movement of orders and materials takes time which can be a risk for both manufacturers and wholesalers when economic market conditions rapidly change.
September’s Employment Situation report from the Bureau of Labor Statistics says that the total number of jobs in the U.S. economy rose by +263,000 last month. The gain in employment of a quarter of a million jobs was the weakest showing among all the months of this year so far, but it was still a pretty decent number. It’s not the sort of figure one would expect if the economy were becoming mired in a recession. That may still happen, but it isn’t necessarily here yet.
ConstructConnect’s Expansion Index is a monthly measure of the dollar value of planned or ‘contemplated construction projects compared to the same month one year ago. The Index geographically covers Canada, the United States, and their respective metropolitan statistical areas.
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.