Commercial Construction Hits Recession

Hopes are pinned on public works construction.

Source : Unsplash, C Dustin

July 13, 2022

Author : Alex Bustillos

Rising interest rates, supply chain issues, and construction material costs are contributing to an emerging recession. 

According to some contractors, developers are delaying projects recently won or that they are bidding on, due to rising borrowing rates and fears that project markets may not be as robust as expected.

According to Dodge Data & Analytics, a Hamilton, N.J.-based Dodge Construction Network company, construction starts in Los Angeles and Orange counties were down 22% compared to the same period last year.

Non-residential construction fell 41% in four months. Non-building construction, mostly public works, infrastructure, and energy projects, was down 13%. This slowdown is anticipated to grow in the coming quarters too. 

As larger projects start to experience delays or get completely shelved, businesses are looking for shorter-term projects that may be inserted into the schedule. Karl Kreutziger, C.W. Driver’s president points out tenant improvement projects as an example.

But there is still a significant issue: supply chain delays that have prevented crucial components from reaching on time due to disruptions brought on by the conflict in Ukraine and the covid lockdowns in China.

The National Association of Home Builders recently conducted a survey, and the results show that after six months of decrease, builder confidence in the market for new single-family homes is at its lowest level since June 2020.

The survey gauges the traffic of potential buyers and builder opinions of current and upcoming single-family house sales. The current monthly data showed losses across all categories, with buyer traffic falling most noticeably, indicating that homebuyers, particularly first-time ones, are giving up.

NAHB’s chief economist Robert Dietz said residential building materials are up 19% year-over-year.

According to data released by the Commerce Department, US home starts in May fell precipitously to a seasonally adjusted annual pace of 1.55 million units. Rising inflation and skyrocketing mortgage rates, which lowered consumer confidence, are blamed for the fall, which is down for the second consecutive month. Starts are currently moving at their slowest rate since April 2021.

May was the lowest level of single-family development since August 2020, a decrease of 9.2 percent from the previous month. Annual construction in this category slowed to slightly over 1 million, which is still below the updated April total.

Executives at Webcor are keeping an eye on public infrastructure projects, which they predict will experience growth in the next quarters.

Construction companies have often turned to employment in the public sector during recessions and other periods of poor economic growth. The $1.2 trillion infrastructure bill that President Joe Biden signed into law in November, however, raises the possibility that the shift will be considerably more noticeable this time.

“We are now looking at large design-build projects in the public sector in LA County,” Webcor’s Pahilajani explained. “This includes education and most especially airports and aviation.”

“Demand for our services is continuing to increase meaningfully, beginning later this year when the funding from the federal infrastructure bill begins to flow,” explained Chief Executive Ronald Tutor of Sylmar-based Tutor Perini Corp.


Category : Contractor Trades Coronavirus Pandemic Investment in Infrastructure Market Watch Material Costs Public Works

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