Implications of Megaproject Proliferation ConstructConnect announced today that January 2023’s volume of construction starts, excluding residential work, was $57.0 billion, an increase of +13.9% compared with December’s figure of $50.0 billion (originally reported as $50.1 billion). January was another month with an extraordinary wealth of mega-sized project initiations (i.e., projects carrying estimated values of a billion dollars or more each.) More on this in a moment.

U.S. import prices increased by 0.8% year-on-year for the period ending January 31, 2023. The latest reading is the lowest since 2020, when import prices temporarily contracted due to legislation that shut down the economy, causing a short-lived decline in demand. It marks a near plateau in import prices which, as recently as March 2022, were rising in excess of 13% on an annual basis.

Broad measures of the economy through mid-February continue to signal that consumer and business conditions overall are doing better than were expected just months ago when many were questioning just what kind of recession to expect in 2023. However, broad measures of economic performance can easily hide the strength or weakness of specific industries, including construction.

The dreaded and ballyhooed recession remains at bay for the moment. In fact, much of the recent news concerning the economy has been great. GDP growth at the end of last year was remarkably strong. Jobs creation is still supercharged. Unemployment rates are holding fast at minimal levels. Retail sales have been booming. ConstructConnect’s own construction starts statistics, supported by megaprojects, began 2023 with a bang. And inflation is continuing to abate.

During the decade between the Great Recession and the coronavirus pandemic (2010 – 2020), the U.S. economy added an average of 180,000 workers monthly. Had this trend not been interrupted by COVID-19, the United States would theoretically have added nearly 6.5 million new workers during the three-year period ending January 2023, cumulating in a total employed persons count of just over 165 million.

Inventory-to-sales levels can be helpful indicators of where the balance between supply and demand stands for various categories of products. If and when wholesaler and manufacturer inventory levels become bloated, it can lead to lower prices downstream for end-users, including trades and general contractors, as upstream suppliers reduce prices to protect their market share from competitors.

U.S. construction starts grew 16.7% in 2022 to $912 billion. A record value for megaprojects (projects valued above $1 billion) was posted in 2022, with 31 such projects started for a total value of $105.3 billion. Nonresidential building starts grew 36.7%, driven by new factory buildings. Civil engineering starts grew 26.9% in 2022, with all sectors expanding except for the miscellaneous civil engineering sector. New residential construction, by contrast, fell 2.2%. On a regional basis, new construction grew in all four major regions, led by construction in the South.

Broad measures of construction material prices have pointed to a sharp slowing of year-on-year price increases for said materials. The Bureau of Labor Statistics Producer Price Index for construction materials which registered 30% and greater annualized price increases between June 2021 and January 2022, marked its first annualized contractionary reading of -2.36% at the end of 2022.

In January, the United States recorded a big employment increase, +517,000 jobs. In the same month, and with a considerably smaller population base, Canada followed suit, +150,000 jobs.

With trillions of dollars on the line and reputations at stake, banks have a strong incentive to accurately gauge the future of the economy. If the economy appears as though it is about to falter, banks have several ways to protect themselves from losing money or even risking their solvency. In short, banks can increase, or tighten, their loan standards, granting loans only to entities that they perceive as being the safest risks and hence more likely to pay back their loans.