Construction Economic Report
Executive Summary – May 2024

Big Items

Real GDP: Q1 2024 was partially stunning to analysts. At one point in the quarter, analysts thought it might have been growing by as much as 3%, but the first reading on Q1 had it come in at 1.6%. This will be adjusted a bit, but it was still a stable reading for Q1. Consumer spending was still a primary driver and government spending carried more weight this quarter. The second quarter is expected to grow at nearly 1% while Q3 could be lackluster at 2%. For the full year, estimates on Real GDP have been pushed up from 1% to at least 2% and perhaps higher if these trends continue.

Raw Material Prices/Availability: Raw material prices are mixed, but most are generally slightly weaker on a year-over-year basis. Slowing of demand in countries like China and across Europe are largely helping ease overall demand. Some commodities (like copper-based products) are higher because of stronger global manufacturing demand for copper products. Many suppliers are also getting hit with higher transportation costs due to the closing of the Red Sea. Red Sea disruptions have pushed up general rate increases for shipping containers by more than $1,000 per container (approximately 33% higher), which is increasing input costs.

Labor Situation / Labor Costs: The construction sector Employment Cost Index showed that overall labor costs are still high and climbing. It is now at 162.5 in Q1, up from 160.6 in Q4. Most importantly, wages are still growing at a 4.2% annual rate. That’s the lowest since 3.57% in Q1 of 2022. The average prior to the pandemic was 2-3% annually, wages are still growing at nearly twice the annual rate. Some slowing of construction demand and the use of immigrant workers for some positions (as soon as they are eligible for temporary employment) will help ease labor pressures. In fact, job openings in the construction sector fell at their fastest rate month-over-month in history. There are questions about the data, some revisions of this data may adjust these figures in the months to come.

Manufacturing: S&P Global data shows the US near contraction territory with a reading of 50.0 in early Q2. For most of Q1, manufacturing showed some slight expansion, but that has now flattened. Mexico was the only USMCA market still growing based on the latest data. Europe was showing some signs of recovery at the end of Q1, and many Asian markets were ticking up. India was still the fastest growing market in the world. But in the US, new orders are sluggish, input prices are still high (raw materials, component parts, labor, and energy), and selling prices are facing some pressure. Heading through Q2, with global inventories more balanced than in prior quarters, the hope is that global activity will gain some pace and lift all sectors.

Risks

Geopolitics and Inflation: Developments in the Middle East are in a constant state of flux, and that has pushed the price of oil higher. At the time of writing, West Texas Intermediate was still near $79.80 a barrel and Brent North Sea Crude was nearly $85. Although some of the volatility in the Middle East was easing at the time of writing, there are some estimates that oil prices could touch $100 a barrel by July based on supply/demand dynamics and if global economic activity picks up pace as current trends appear to show.

Hurricane Season and Severe Storms: It is no secret that this has been one of the most active spring tornado seasons in memory. Billions of dollars in both tornado and hail damage has been recorded throughout the eastern 2/3rds of the country leaving the construction and construction materials industry with a new set of both opportunities and challenges. This year is also expected to be one of the most active hurricane seasons in recent history. Atlantic surface water temperatures are still extremely hot and a transition from a strong El Nino into La Nina removes much of the upper wind sheer that has been steering storms away from the US and has also ripped the tops out of storms (not allowing them to build strength). Those conditions could lead to one of the more active seasons primarily for US and Caribbean landings along with strong storms (Category 3+) according to forecasters. On top of a strong spring thunderstorm season, it could bring challenges for certain raw materials (roofing, siding, lumber) and create challenges to meet demand for construction in some areas of the country.

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The CICPAC Quarterly Economic Report is published quarterly for the Construction Industry CPAs and Consultants. Its contents are solely for informational purposes and any use thereof or reliance thereon is at the sole and independent discretion and responsibility of the reader. While the information contained in this report is believed to be accurate as of the date of publication, CICPAC and the author disclaim all warranties, express or implied, as to its accuracy and completeness.