The Highs and Lows in Store for the Construction Industry

Fasten your seat belts and enjoy the ride. Like airline travelers bracing for expected turbulence, contractors are preparing for a tricky operating environment in 2024.

“Construction companies in all sectors have been busy,” said Anirban Basu, chief economist to Associated Builders and Contractors. “But I think what you’ll see going forward is that some contractors will get even busier while others will see their revenues begin to fade.” 

The future will be bright for those contractors aligned with megaprojects in infrastructure and computer chip manufacturing, noted Basu. The picture is cloudier for others aligned to markets such as offices, hotels and shopping malls. “We know we have many millions of square feet of distressed office inventory in this country that frustrates new construction,” he said. “Many owners of these office buildings are taking enormous losses on the value of their properties and are having to refinance their debts at a time when interest rates are high, and bankers are reluctant to expose themselves to the vagaries of commercial real estate.”

Helping all those contractors along will be a general economy that continues to grow, although at a slower pace. Consumers and businesses are both feeling fairly optimistic, unemployment remains low, capital investments are plugging along at a healthy pace, supply chains are improving, and the all-important housing market is burgeoning. 

Throwing cold water on the good times, though, is a significant downer that no one can control: Higher interest rates established by the Federal Reserve to control inflation are putting a damper on business activity. 

“A major issue for construction is that inflation remains problematic and interest rates are likely to stay higher for longer,” said Basu. “That impacts project financing.” He notes that the economy is still experiencing inflation pressures from energy prices, wages and consumer spending. 

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