Many Challenges in the Rearview

September 2024

Based on the latest CONFINDEX survey results, there is no evidence that construction in America is facing a meaningful downturn anytime soon. Instead, construction financial professionals anticipate a brighter future as interest rates begin to slide lower and as last year’s mini-banking crisis fades deeper into history.

The Overall Confidence Index expanded to a reading of 108 during 2024’s third quarter, up nearly 2% for the quarter and more than 9% on a year-ago basis. Skill shortages remain the primary concern among contractors, with 64% of respondents indicating a significant level of angst. That concern speaks to an industry that expects to remain busy for the foreseeable future.

Nonetheless, the extent of concern regarding skills shortages has faded a bit. During 2023’s initial quarter, 78% of survey respondents expressed substantial concern about this issue. Indeed, government data indicate that the number of unfilled construction job openings has declined dramatically in recent months. The implication is that construction wages are poised to expand at least a bit more slowly going forward.

All things being equal, slower construction wage growth translates into thicker profit margins. That might help the strong performance of the Business Conditions Index, which expanded nearly 5% in the third quarter and is up nearly 8% on a year-over-year basis with a reading of 110. Many of the core pressures that the industry has been experiencing in recent years are easing. In addition to easing wage pressures, construction materials prices have been well behaved in recent months. That helps explain why the proportion of respondents reporting declining profit margins fell from 36% during the second quarter to 30% during the third.

But life is seldom perfect. The Financial Conditions Index fell nearly 1% during the quarter to a reading of 107, though the reading is up more than 9% from a year ago. Almost 20% of contractors are concerned about financing for projects in a macroeconomic environment characterized by still elevated interest rates and tight lending conditions. Several construction segments have been soft of late, with reports of many multifamily projects postponed and diminished activity with respect to the construction of fulfillment/distribution centers. The office market also remains fragile in many communities, with vacancy rates ramping higher and many buildings hemorrhaging value.