Exploring Construction Industry Growth Trends
The construction industry is a vital part of the U.S. economy, and it continues to grow and expand due to new technological advancements. Over the past three years, economic uncertainty, inflation, and rising interest rates have clouded the overall outlook of the construction industry; however, demand for construction still outweighs supply chain capabilities in most areas.
This year, spending has surged 19.7% in nonresidential construction sectors and is expected to increase an additional 2% in 2024. The residential sector, however, faces further challenges. The National Association of Homebuilders estimates that the number of single-family homes under construction will fall to 744,000 units this year before rebounding to 925,000 units in 2024.
Currently, the construction industry is battling the highest level of unfilled job openings ever recorded due to pandemic-related turnover, a shortage of skilled workers, labor shortages, and changes in workforce demographics.
In 2023, construction firms will need to attract approximately 546,000 additional workers on top of their usual hiring to meet the increased labor demand. This makes construction jobs and the average construction worker a hot commodity, so expect to see increased wages as well.
Previous Market Growth
The past several years have been eventful for the average construction site. According to IBISWorld, the construction industry grew at a pace of 3.2% per year from 2017 to 2022. In the first quarter of 2020 alone, the construction industry added over $900 billion to the U.S. economy—the highest addition since the 2008 Great Recession.
As we entered the post-COVID-19 era, the 2021 construction industry experienced a significant boom. Interest rates hit a record low of 2.65% in January 2021, and the average mortgage rate for the entire year was 2.96%. In addition, the Infrastructure Investment and Jobs Act was passed in 2021, benefiting the civil engineering and nonresidential construction sectors.
According to Deloitte, the construction industry began 2022 on a high note due to an 8% growth in construction spending in 2021. In 2023, however, the industry can expect differentiated growth rates across various industry sectors. Overall, construction industry revenue has declined at a CAGR of 1.3% over the past five years.Total industry revenue is expected to reach approximately $3 trillion by the end of 2023. Looking ahead to 2024, experts anticipate a softer construction market with overall growth of less than 1% next year.
Exploring Construction Industry Trends
Many factors drive trends in the construction industry. For example, the factors below have contributed to the growth seen over the past several years, and they will continue to play a role in the development of construction trends moving forward.
Other advanced technological trends and innovations like building information modeling BIM, internet of things IOT, and new construction materials will continue to push change. The following key construction industry trends include sustainability, automation, data analytics, and labor productivity changes.
The global push toward sustainability, decarbonization, water conservation, and energy efficiency has begun to affect green building, and home construction. Many construction companies have announced Environmental, Sustainability, and Governance (ESG) plans in response to sustainability concerns.
Additionally, net-zero constructions, which generate at least as much energy as they need to operate, are expected to increase in 2023 because businesses want to benefit from tax incentives, health benefits, and reduced energy costs.
Sustainable construction in both residential and nonresidential applications has several key benefits:
- Promotes healthier living
- Reduces waste
- Boost the economy
- Promotes cost efficiency
- Can decrease material costs
- Enables carbon footprint reduction
These benefits and the growing concern over climate change have made sustainability and the rise of smart cities a top priority for homeowners, architects, and builders. Sustainability goals will undoubtedly lead to reconstruction and new construction projects over the next several years and beyond, making it one of the top trends to watch in real time.
Automation, artificial intelligence (AI), and robotics are increasing productivity, reducing errors and delays, and cutting costs in the construction and manufacturing industries. For example, the construction industry uses automation tools such as drones, 3D printing, autonomous vehicles, and robots. Additionally, some manufacturers are using automation to help ease the stress caused by the lack of skilled labor in the U.S.
Some may wonder about the long-term effect of automation on the construction industry, but it’s still too early to evaluate. According to McKinsey & Company, most workers complete construction processes manually, but automation will increase over time.
One particular sector of construction that will raise the overall use of automation is modular construction, which is expected to increase over the next several years. In modular construction, buildings are constructed off-site, using the same materials and standards as traditional building projects; however, modular construction takes about half the time.
Permanent modular construction (PMC) reached $12 billion in North America in 2022, which accounted for 6.03% of all new construction starts. As the modular construction industry grows, automation will also increase—about 15-20% of new build construction in the U.S. will be modular by 2030. As a result, automation could take the construction industry by storm.
As technology advances, new data analytics will be available for construction firms to assess productivity, plan projects, predict market patterns, and more. Over the next few years, more and more construction companies will use data analytics to improve their overall decision-making, allowing them to remain competitive in the current marketplace.
Construction firms may use data analytics to:
- Increase building efficiency
- Reduce environmental impact
- Improve collaboration
- Increase quote accuracy
- Reduce human error
- Improve timelines
Labor Productivity Changes
Due to the shortage of skilled tradespeople, construction firms must focus on productivity. Productivity is generally measured by dividing total output by total input—labor, materials, and equipment.
Construction labor productivity increased from 2009 to 2013 but steadily declined until 2019. In 2020 and 2021, productivity rose but declined in 2022, even though work hours grew slightly.
In September of 2023, the Bureau of Labor Statistics (BLS) updated measures of productivity for four construction industries through 2022: single-family, multi-family, industrial, and highway, street, and bridge construction. The report measures productivity based on employment data, output, and hours worked.
Productivity rose in 2020 and 2021 but declined in 2022 as output declined while hours worked increased slightly.
From 2016 to 2018, productivity declined significantly due to increased hours worked. Then, productivity grew from 2019 to 2021 as output increased faster than hours worked. In 2022, productivity fell again when output declined and hours worked increased.
Industrial building construction
In 2021, output and hours worked increased, but since hours worked rose faster than output, productivity dropped. In 2022, productivity grew because output rose much faster than hours worked.
Highway, street, and bridge construction
Productivity increased in 2020 but declined in 2021 because hours worked decreased at a slower rate than output. Productivity continued to decline in 2022.
Some look at construction labor productivity trends and say there is a constant, concerning decline, while others, like the BSL, state that productivity measurements are inherently flawed, making true productivity difficult to report.
On the other hand, McKinsey & Company explains that labor productivity in the construction sector has averaged only 1% growth each year for two decades, while the world economy has a productivity growth rate of 2.8%. If the construction industry catches up in terms of productivity, it would boost the market’s value by about $1.6 trillion.
What are the Fastest Growing Construction Markets?
The construction industry is anticipated to grow by 4% from 2019 to 2029. Some of the projects that will project this growth are healthcare facilities, data centers, and warehouses. The renewable energy sector will also be booming over the next few years.
The U.S. population is expected to increase from 336 million people in 2023 to 373 million people by 2053. This increase in people results in a consistent rise in demand for residential housing as well. This will escalate residential construction to the top of the growing markets’ list.
The government plans to raise the budget by 1.9% to support home ownership, sustainable community and housing developments. This also provides access to affordable housing for homeless and vulnerable families.
Commercial construction and major construction projects will also continue to grow. With more consumer spending and governmental investments in tourism, office buildings, and retail space, commercial construction businesses will reap the rewards.
Which Construction Markets Are Declining in Growth?
The FMI 2022 Engineering and Construction Outlook forecasts that single-family homes, power plants, improvements to existing homes and buildings, and office complexes are areas of the construction industry that will decrease over the coming year.
According to Forbes, nonresidential construction will decline as the economy is expected to enter a recession sometime in 2024 or soon after. What does this mean for the construction industry? Well, the slowdown will be noticeable, but not devastating.
The commercial construction market, which includes retail, restaurants, warehouse facilities, and more, represents the largest nonresidential category at 21%. The commercial sector has grown steadily since the summer of 2020, but several sectors within this segment are not expected to grow.
Warehouses will likely grow due to the rise of online shopping, while retail construction is not anticipated to increase.
Another large segment of commercial construction is power plants. Spending in this area has decreased by 14% compared to one year ago. With electric reliability worsening, power construction will level off for a few years. Forbes points out that spending in this sector will eventually rise again.
Navigate Construction Industry Changes With Tradesmen International®
Since the construction industry continues to grow and expand, the demand for residential and nonresidential construction will remain high. As such, your company will need trusted, skilled tradespeople, but the current labor market could make finding and vetting candidates more difficult than ever.
If you need help supplementing your full-time team, contact Tradesmen International®. We’ll match your needs with skilled labor and vetted craftworkers from our network. Get ready for your next construction project by completing our contact form today!