As a whole, the construction industry has stabilized from the increases in labor and material costs that occurred due to the Covid-19 pandemic. During a recent Erickson-Hall Construction Co. meeting, Justin Sinnott, Vice President OC/LA, and Daniel Weigel, Project Executive, San Diego County, presented the state of the market and provided a forecast for the industry in 2024. The construction industry faced challenges from the COVID-19 pandemic due to shutdowns, supply chain delays and labor shortages. However, the industry has turned a corner following significant stabilization in the past year. Therefore, Erickson-Hall has a hopeful outlook for 2024, with this promising shift due to progressions in labor market conditions, supply chain dynamics and material availability.
State of the Market
Erickson-Hall Construction Co. closely follows the state of the market to stay up to date on trends and best practices. 2023 was the year of stabilization with construction material indices steadying. However, the market will continue to fluctuate based on these driving factors: the federal reserve and interest rates, architectural billing index, Russia-Ukraine war, tariffs, imports, natural causes such as hurricanes and wildfires, and labor shortages/wages. Additionally, transportation and freight continue to be impacted by fuel prices.
As for the current labor market and wages, Erickson-Hall noted that growth has slowed to 4.1% in the past year which is the highest gain since June 2021. Wages are continuing to rise and have increased 19% since 2019 due to an increase in job openings compared to available workers. However, job growth did slow in October due to the United Auto Workers strike.
Stability continues as the theme for material availability and market trends. Lumber and steel prices continue to level off, demonstrating supply steadiness. Lumber price levels have even returned to what the industry deems the new normal. Even though concrete and copper continue to rise because of transportation costs and total demand, the industry is still seeing overall material availability improvement.
“It is refreshing to see the construction industry stabilizing following the COVID-19 pandemic,” said Vice President Scott Hammond. “Adapting to the new normal in price levels, material availability and market trends demonstrates how resilient the industry is and provides a promising outlook for the next year.”
Looking into the Future: 2024 Outlook
As leaders in the construction industry, Erickson-Hall has analyzed data to provide an overview of notable trends for the next year. First, the Federal Reserve’s macroeconomic projection for inflation in 2024 is 2.5%, aiming for 2.0% by 2026, providing some relief for the industry. Additionally, the Global Supply Chain Pressure Index hit a historical low in 2023, contributing to shorter lead times which means that large supply chain disruptions are in the past for now.
As for materials, Erickson-Hall highlights that lumber is seeing steady lead times with the longest time being about eight weeks. There have been no labor shortages regarding lumber, yet hardware pricing is increasing by about 8% year to year. On the other hand, steel prices are rapidly increasing due to strikes and shortages. Additionally, steel prices are projected to increase again because of the Buy Clean California Act later in 2024. Lastly, electrical and HVAC costs and lead times are expected to increase due to different variables such as war and natural disasters.
“This year’s outlook for Erickson-Hall and the construction industry as a whole is very hopeful,” said President Mat Gates. “We’ve faced many challenges the past couple of years and the data shows that 2024 may be a turning point demonstrating the grit people in the industry carry. As a company, we are excited about our upcoming projects and all the work a more stable market affords us to do.”
Erickson-Hall Construction Co. Best Practices and Project Recommendations
Even though the state of the construction industry is heading in a positive direction, the sector still faces challenges. Erickson-Hall states that the biggest key in navigating these challenges is utilizing the right delivery method for the project. It is crucial to purchase long lead items early on to ensure that they are on site when they are needed. Therefore, proactive scheduling, early submittals, robust communication, open book accounting and strategic technology usage can help capitalize on these positive market conditions and mitigate risk.