US construction slowing down

Optimism remains, despite slow down 

The US construction industry is slowing down, with high interest rates acting as a barrier to growth. Many speculate that September 2024 could see the first interest rate cut in four years, however, offering hope of improved market conditions.

Such a decrease is unlikely to significantly boost construction activity in the short-term, or instantly increase credit availability and cash flows. While stock markets can shift within minutes, it takes time for investors to change tact and contractor balance sheets to improve. The positive impact of interest rate reductions on construction activity may be lagged by at least a year.   

Market conditions shaping escalation forecasts

Construction escalation has tempered slightly yet bid price growth continues to increase. This means that escalation is not falling and bid prices (on average) are not lower than what they once were – they are still rising. 

Factors informing our escalation forecasts are:

• Current activity: the US economy is cooling, and its construction industry is softening. Growth is still prevalent, but variable by sector and location.
• Leading indicators: data is trending downwards and confidence is constrained, although construction permits have improved.
• Materials cost and availability: global commodity and freight cost are amplified, but domestic costs and lead-in times have settled amidst softer demand.
• Workforce: skills shortages persist and wage gains remain elevated. The labour market is not as tight as it once was and that should edge down earnings growth over time.
• Machinery and equipment: little change other than small reductions are easing some price pressures. Key items remain scarce and costly.