January 30, 2023

2023 construction outlook: high hopes for public funding

Sandherr

Each year, AGC of America and Sage conduct a nationwide survey of the construction industry on their expectations for the coming year. And while contractors are less optimistic about many private-sector segments than they were a year ago, their expectations for the public sector market have remained relatively bullish. The bottom line is that contractors have high hopes for public funding in 2023 even as they expect to cope with continued supply chain challenges and workforce shortages.

The changing outlook reflects the fact that higher interest rates and evolving work and shopping patterns are impacting office, retail, hospitality, and multifamily residential demand. The prospect of an economy that is slowing and perhaps heading into recession has dimmed the short-term outlook for warehouses, data centers, and manufacturing plants.

At the same time, many contractors hope to finally see the benefits of a flurry of new federal investments in infrastructure and construction. This includes funding from the Bipartisan Infrastructure Law, the CHIPS Act and the so-called Inflation Reduction Act. In addition, many state and local governments have boosted their construction budgets as they have benefited from a strong economy and a COVID-related influx of federal funds.

Even as market demand evolves, contractors will continue to be confronted by many of the challenges they faced in 2022. This includes the impacts of supply chain problems that have inflated the cost of many construction materials and delayed deliveries of those products. Contractors also expect to continue to struggle to find enough workers to keep pace with demand in 2023.

An overwhelming 80% report they are having a hard time filling some or all salaried or hourly craft positions, compared to only 8% who say they are having no difficulty. In addition, the majority — 58% — of respondents says either hiring will continue to be hard or will become harder. Only 15% say it will become easier or remain easy to hire, while 27% expect no change.

Only 9% of firms report they have not had any significant supply chain problems in 2022. To cope with these problems, more than two-thirds of respondents have reacted by accelerating purchases after winning contracts. A majority turned to alternative suppliers. Almost half have specified alternative materials or products, while close to one-quarter have stockpiled items before winning contracts.

Most contractors have experienced project delays or cancellations. Only a third report no projects have been postponed or canceled. A substantial share of respondents reports a project was postponed in 2022: 39% report a postponed project was rescheduled, while 36% had a project postponed or canceled last year that has not been rescheduled. Thirteen percent of firms have already experienced a canceled or postponed project that was scheduled to begin in the first half of 2023.

To counter the challenges contractors will face in 2023, federal officials need to deliver on the promise of these substantial new investments in infrastructure and construction. To do that, they will need to address much of the regulatory and permitting uncertainty that muted the hoped-for benefits of the Bipartisan Infrastructure law in 2022.

The administration must also address many of the labor and tax provisions that were included in the so-called Inflation Reduction Act. For example, the law offers significant tax breaks for many types of energy-efficient construction projects, but only if a percentage of the workforce performing the work is involved in a registered apprenticeship program. The administration must make it easier for construction firms, community and technical colleges and other institutions to establish and be registered as apprenticeship programs.

And Congress should work with the administration to pass immigration reforms and boost investments in career and technical education programs. This will help encourage more people to pursue high-paying construction careers.

AGC of America is supporting the industry as it works to overcome the challenges it faces. This includes our ongoing targeted digital advertising campaign to help identify and recruit new workers into the industry. This campaign, which is called Construction is Essential, enables us to partner with our chapters across the country to help drive significant numbers of candidates to local construction workforce recruiting campaigns and direct them to training opportunities.

Our Culture of CARE program, which was first developed in the Seattle area by the AGC of Washington, is also helping firms better attract and retain talent, particularly diverse talent. Culture of CARE is a comprehensive program designed to help firms create a more welcoming and inclusive work environment. To date, over 800 firms are participating in the program, and we continue to urge other members to sign up for the program by visiting BuildCulture.org.

And we will continue to be vigorous advocates for the industry in Washington, D.C., and with public officials across the country. The bottom line is we will do everything in our power to make sure that 2023 is a successful one for the industry, our members and the tens of thousands of men and women that they employ.

Stephen Sandherr is the chief executive officer of the Associated General Contractors of America.

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