{"id":595127,"date":"2023-01-07T12:49:29","date_gmt":"2023-01-07T18:49:29","guid":{"rendered":"https:\/\/news.sellorbuyhomefast.com\/index.php\/2023\/01\/07\/contractors-2023-econ-forecast-the-optimism-paradox\/"},"modified":"2023-01-07T12:49:29","modified_gmt":"2023-01-07T18:49:29","slug":"contractors-2023-econ-forecast-the-optimism-paradox","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2023\/01\/07\/contractors-2023-econ-forecast-the-optimism-paradox\/","title":{"rendered":"CONTRACTOR\u2019s 2023 Econ Forecast: The Optimism Paradox"},"content":{"rendered":"
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As we head into 2023, the economic picture is murky. While the US recorded negative GDP in the first two quarters of 2022 (putting us unofficially in a recession), Q3 marked an increase in GDP of 3.2%. Employment levels remain high (with the official unemployment rate as of December 2022 just 3.5%), with a concomitant upward pressure on wages. Inflation also remains stubbornly high and the supply chain\u2014while improved from a year ago\u2014shows some persistent problems. <\/p>\n

Paradoxically, the general mood in the construction industry is positive, with most builders showing record backlogs (in December, ABC\u2019s Backlog Indicator reached its highest level since Q2 of 2019), and moderate-to-high confidence in the business outlook for 2023. <\/p>\n

The Inflation Situation<\/h3>\n

The lead economic story for 2022 was inflation, and the Federal Reserve\u2019s efforts to keep it under control. Over the 12 months ending in June 2022, the Consumer Price Index for all urban consumers increased 9.1%\u2014the largest 12-month increase since the 12-month period ending November 1981. In response, the Fed hiked the Federal Funds Rate seven times in 2022. The rate now stands at 4.25%-4.50% pushing borrowing costs to the highest level since 2007. <\/p>\n

While the stock market has seen some steep sell-offs, most of the Fed\u2019s moves have been in line with market expectations. Fed Chairman Jerome Powell has made it clear (well, clear for a professional economist) that the Fed is willing to risk, or even cause a recession if that\u2019s what it takes to bring inflation under control. (And history bears this out; the Fed triggered two recessions in the 1980s as a direct result of its inflation-fighting policies.) \u00a0<\/p>\n

\u201cThe Federal Reserve\u2019s ongoing battle with inflation has raised concerns that a recession is imminent in the new year,\u201d said Richard Branch, chief economist for Dodge Construction Network during the 2023 Dodge Construction Outlook delivered on November 15, 2022. \u201cRegardless of the label, the economy is slated to significantly slow, unemployment will edge higher, and for parts of the construction sector it will feel like a recession.<\/p>\n

\u201cNext year, however, will not be a repeat of what the construction sector endured during the Great Recession when the financial system collapsed. Residential construction, already reeling from rising mortgage rates, will continue to contract and will be joined by nonresidential construction as the commercial sector retrenches. The funds provided to the construction industry through the Infrastructure Investment and Jobs Act (IIJA), The CHIPS and Science Act, and the Inflation Reduction Act (IRA) will counter the downturn allowing the construction to tread water. During the Great Recession, there was no place to find solace in construction activity\u20142023 will be quite different.\u201d<\/p>\n

The Construction Market<\/h3>\n

<\/lazyweboembedimage>What will the construction market look like in 2023? While mortgage rates have risen (at the time of this writing the current average on a 30-year fixed mortgage stands just above 7%), the housing shortage remains acute. According to the National Association of Realtors (NAR), the supply of homes for sale in the U.S.<\/a>\u2014typically measured in months of supply\u2014reached a record low of just 1.6 months in January 2022. It has since climbed back to 8.6 months as of November of 2022. Despite that growth, supply is still not enough to meet demand\u2014and it is demand that drives markets. <\/p>\n

One of the most reliable leading indicators, the Architecture Billings Index (ABI), has only recently shown signs of a slowdown. After architecture firms experienced their first decline in billings in nearly two years in October of 2022, business conditions softened further in November as the ABI score fell to 46.6 (any score below 50 indicates a decline in firm billings). While inquiries into new projects continued to rise modestly, the value of new design contracts also declined further in November.<\/p>\n

Moving from the buyers and architects to the builders themselves, Associated Builders and Contractors reported in November 2022 that its Construction Backlog Indicator declined to 8.8 months in October, according to a member survey conducted Oct. 20 to Nov. 4. The reading is 0.7 months higher than in October 2021.<\/p>\n

<\/lazyweboembedimage>After surpassing its pre-pandemic level in September, backlog is now back below the reading observed in February 2020. Backlog in the commercial and institutional category posted its largest monthly decline since July 2020 and is now 0.4 months below pre-pandemic levels.<\/p>\n

At the same time, ABC\u2019s Construction Confidence Index reading for sales increased in October, while the readings for profit margins and staffing fell. All three readings remain above the threshold of 50, indicating expectations of growth over the next six months.<\/p>\n

\u201cOctober\u2019s survey data hinted at some emerging weakness in the nation\u2019s nonresidential construction sector,\u201d said ABC Chief Economist Anirban Basu. \u201cWhile the industry continues to gain strength from significant funding for public work, pandemic-induced behavioral shifts\u2014including remote work and online business meetings as well as surging borrowing costs\u2014are translating into meaningful declines in backlog in commercial and institutional segments.\u201d<\/p>\n

The Dodge Industry Forecast offered these predictions for 2023:<\/p>\n